by Frank Schnittger
Wed Oct 8th, 2008 at 10:28:31 AM EST
Whatever the merits of recent Government interventions to try and save the international banking sector there is one dog that just didn't seem to bark. Whilst the Fed and US Treasury Secretary Paulson negotiated major Government interventions in the US, Individual EU member Governments were left largely to fend for themselves. Sarkozy did call a meeting of German, British and Italian heads of Government, but has yet to call a meeting of the European Council. That Franco/German/British/Italian summit produced only aspirational agreements in any case, and next day Merkel approved unilateral deposit Guarantees having just criticized Ireland for doing so.
Although our very own Jerome has characterised the ECBs's performance as virtually flawless, it too seems to have had some difficulty getting it's head out of its arse. How can it be right to refuse to reduce interest rates by even 25 points on one day and then agree to a coordinated global interest rate reduction of 50 points a few days later? Of course the problem is largely one of the ECB's mandate, which appears to be almost exclusively to manage interest rates to keep inflation at or slightly below 2%. But what does it matter whether the inflation rate is 2, 3 or 4% when the financial world is collapsing around its ears?
The risk now, with the real economy following the financial sector into recession is one of deflation rather than inflation in any case, but what bone headed institution targets inflation alone when the real economy is in danger of major collapse? The Lisbon Treaty may not have contained much of direct relevance to this crisis, but would a full time President of the European Council have sat on his hands for so long?
All of this is not to say that we wouldn't be a whole lot worse off without the EU and the Euro, and perhaps even the ECB. What it does mean, however, is that these institutions are woefully inadequate to come up with a timely response to a major international crisis. No doubt a semi-coordinated response will gradually emerge, driven as usual, by France and Germany with the EU providing some post hoc rationalisation and legitimation.
Nothing can do more damage to the European Ideal, however, than a popular perception that the EU is a luxury we can afford to give lip service to in the good times, whilst its every nation for themselves when things get Ugly. The plight of Iceland is a salutary reminder of what can happen to a small country outside a supra-national framework, and even Britain may come to rue the day they didn't join the Euro. Much has been achieved but we really need to push on from here. The USA has shown that it is no longer a trustworthy leader of the Global financial system, but is the EU even at the races?
More likely China, Russia, India, Saudi Arabia and other emerging regional powers will look to their own devices to secure their economic and financial futures. Few will look to the EU as other than a somewhat stodgy safe haven in times of crisis by reason of its size alone. But there is also a real need for leadership here at a global level. But where are the Global leaders? Bush has retreated into his bunker. Sarkozy blows hot and cold. Brown is beleaguered on his own turf. Merkel is reactive rather than proactive. Russia has its own problems, and China could care less what happens in the West - even with its massive investments and trade dependencies here.
Hallo? Is there anyone out there? We can't afford to wait on what a President Obama might do. The EU has to find a coordinated, consistent, proactive and institutionalised set of policies to regulate its Global financial services, assist major banking and other corporations in trouble, and build for the long haul and a more sustainable future. The EU Commission has appeared clueless as to how to respond. The EU Parliament irrelevant. The EU Council non-existent, and the ECB stuck in a mindset born of the past. Maybe we need a much more radical Treaty than Lisbon ever was. Maybe it is an even more necessary first step in the right direction. But if the EU cannot make more of a contribution to the resolution of this crisis it will become to be seen as irrelevant to its members futures, and a resurgence of nationalism will result. Where is the vision, the dynamism and the capability?