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Where is the EU?

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?

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Coordinated activism will not necessarily help anything. And the life still goes on day by day. Perhaps letting everyone figure it out by oneself is not a terrible idea - there will be choked cases as Iceland, and "undeserved" lucky "winners", but how much can you do when anything can happen? No one really knows what comes next, but patience is probably not a "clueless" tactics within so much uncertainty. If everyone tries its own way, some will struck "solutions" that work helpfully; then everyone can copy them, later better than never. If this looks Darwinian... well, we can learn the nature better as well. The evolution has seen millions of boom and bust cycles of various scales, and it apparently solved them without any central authorities (and eventually, without visible monopolies). All we need is to get through this episode of financial gaming, trying to keep as many economic ties as possible.  
by das monde on Wed Oct 8th, 2008 at 11:06:01 AM EST
Agreed that a certain amount of trial and error is inevitable and that a lack of coordination can also lead to greater local flexibility and creativity.  However the problems here are clearly global in scale and equally clearly require global solutions.  A small economy like Iceland is almost helpless, and a slightly larger one like Ireland has to adopt extreme solutions which may or may not set helpful precedents.

I hope you are not advocating a kind of economic/financial/political Darwinism when it comes to finding solutions - because that is what the fee marketeers used to advocate at a corporate level, and that didn't turn put very well.

Vote McCain for war without gain

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Oct 8th, 2008 at 01:37:20 PM EST
[ Parent ]
The difference of the "new" Darwinism is that solutions are shared (to maximize overall fitness) rather than monopolized (to maximize relative fitness).

Europe has more resources to spread "hardships" more evenly across various sectors. They need less excuses to communalise some benefits of "necessary" bailouts. The uncertainty of centralized bailouts forces individual subjects to look for solutions themselves, reducing pressure on government and moral hazard. Europe still does not have its own mortgage crisis - or it would be milder, solvable even with assistance to homeowners.

by das monde on Wed Oct 8th, 2008 at 09:54:18 PM EST
[ Parent ]
I am very very miffed that Sarkozy called a summit of the EU members who are in the G8 as if that were a valid European criterion. Ireland and Belgium are the EU (even € zone) countries that seem hardest-hit by the bank crisis so far and neither were invited to the meeting. Why wasn't there a meeting of the Ecofin?

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Oct 10th, 2008 at 06:28:16 AM EST
I would have thought Spain had even greater cause to be miffed - and if your diary here is any guide - might also have had more to contribute.  The lack of leadership at EU Council level is stunning.  Is Sarkozy trying to prove that the EU can't work without Lisbon?

Vote McCain for war without gain
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Oct 10th, 2008 at 07:03:31 AM EST
[ Parent ]
Zapatero was squarely on the "we need a coordinated solution" camp, but when everyone agreed to give each member state free rein he naturally went and said all Spanish shitpile are belong to ZP.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Oct 10th, 2008 at 07:10:17 AM EST
[ Parent ]


Vote McCain for war without gain
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Oct 10th, 2008 at 07:12:09 AM EST
[ Parent ]
IMHO.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Oct 10th, 2008 at 07:14:00 AM EST
[ Parent ]
Perhaps I am being dense, but my question was "are you saying Zapatero has taken personal political responsibility for dealing with the Spanish Shitpile and is no longer looking for a coordinated EU response?"

If so, that is an understandable national(ist) reaction to exclusion at EU level and may work out fine if the Spanish financial system is strong enough to deal with the Spanish property bubble.  It does nothing for EU members in a more vulnerable situation, nothing for EU cohesion and ongoing development, and nothing for a coordinated global response to the crisis.

In my view it reinforces my argument above that the lack of EU level leadership undermines the EU and risks provoking a resurgence of nationalism in member states as everyone rushes to protect their own patch with no regard for the impact on others.

Vote McCain for war without gain

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Oct 10th, 2008 at 07:35:31 AM EST
[ Parent ]
No, the Spanish plan was announced after an EU-wide agreement to give the national governments free rein and suspend (er, apply flexibly) the EU's rules on State Aid and the Growth and Stability pact. The EU agreed to raise the minimum deposit guarantee from €20k to €50k with an option to make it larger and Spain was one of a few EU countries to quickly raise the guarantee to €100k.


A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Oct 10th, 2008 at 08:12:16 AM EST
[ Parent ]


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