Hands-off approach: Internal Market Commissioner Charlie McCreevy wanted to be remembered for the regulations he would refuse to adopt. Photograph: European Communities

The European Commission and its President José Manuel Barroso have been repeatedly vilified since the beginning of the financial crisis. They have been variously accused of inaction; of being subservient to a free-market ideology faulted for the crisis itself; of yielding to the large member states and being incapable of defending the European common good. A number of centre-left parties across the EU embarked on an anti-Barroso drive in their campaign for the European elections.

But, as Commission spokespeople regularly point out, each of these criticisms can also be reversed. The Commission is not responsible for the policy paralysis, which derives from insurmountable differences between (large) member states. It has proposed intrusive regulation, for instance on rating agencies or securitisation, which proves it is not in the hands of advocates of laissez-faire – and it is unfair to argue that earlier regulatory moves, including the endorsement of International Financial Reporting Standards and of the Basel 2 capital accord, were really causes of the present financial mess. And it has enforced competition policy and defended the single market, obliging member states to amend their initial plans in various cases that range from Irish deposit guarantees to France’s support to carmakers. President Barroso has skilfully played a weak hand.

Which argument is true? As usual, a bit of both. Many Euro-nostalgics tend to idealise the years of Jacques Delors’ Commission presidency and to forget that they rested on an unusual degree of consensus among large member states. The most damning cases of bank failures so far in Europe – IKB, Northern Rock, Fortis, Hypo Real Estate – have little to do with the European Union, let alone the Commission. The inability to act forcefully to fix Europe’s banking crisis is something the Commission cannot overcome alone.

But behind these facts lies a deeper and perhaps subtler challenge. The Commission’s policy as regards financial services in the past decade has been driven by a single aim: cross-border integration. Dismantling existing barriers and creating a single financial market has been the overarching theme. Not that this aim isn’t worthy. Financial integration holds the promise of more efficient allocation of capital and better access to finance throughout the EU – a promise that has been delivered to central and eastern European countries that enjoyed years of strong catch-up growth fuelled by credit channelled through pan-European banks.

The problem is that a single integrated market cannot be sustainable without strong supporting public institutions. And here, the Commission is at fault for its lack of vision. The free-market fundamentalism of Commissioner Charlie McCreevy, who in 2004 famously quipped that he wanted to be remembered for the new regulations he would refuse to adopt, combined here with the Commission’s traditional turf protection, which makes it wary of any new EU-level bodies that would not be itself. But the Commission is not a financial supervisor and probably never will be, if only for lack of specialised skills given its recruitment and career-management framework. The upshot is that the mantra of the past few years has been financial integration without institutional build-up, the latter substituted by the creation of a dizzying range of committees and committees of committees, first under the Lamfalussy architecture and now, it must be feared, in the wake of the Larosière report.

This policy was perhaps a useful fudge in fair-weather times, but can no longer hold now that effective public authority is needed to fix the financial system. For better or worse, system-wide financial supervision in the EU means EU-level supervision – unless we refragment the whole system down to the national space, which is possible but would make almost everyone poorer. The Commission must build a renewed vision of what this means in practice – the criterion being neither to be “evolutionary” nor “revolutionary”, only effective. The unclear, convoluted plan communicated on May 27 falls well short of this. The task will probably have to be carried out by the next Commission – and it will take time to do well.