Please, someone, correct me if I'm wrong, but I think this is essentially how the European Commission allocates scientific funding--professors basically get big block grants to fund their labs to do whatever. Then there are some big grants that go to institutions, with those like ETH Zurich soaking up a lot of the funds, and then those institutions can distribute to the smaller ones as they see fit. Rubbing up to high-profile professors at ETH or GeoForschungsZentrum feels a lot like petitioning King Frederic of Prussia, rather than anything merit-based.
It's really not clear to me that this is a better system; at least in my field (geosciences) I don't think that the European labs are more innovative or productive than their American counterparts, which is what the 'fund people, not projects' idea is supposed to enable. Furthermore, it completely blocks nonacademic research funding, or much project-specific funding. For example, I work for an applied science nonprofit based in Italy, and we have a lot of ideas that would (in principle) be big hits at NSF, but there is no real avenue to fund ~€100-300k projects on an ad-hoc/project-specific basis.