The European Union's Do-Nothings
French President Nicolas Sarkozy called an emergency meeting of European leaders last Saturday to address their fast-melting financial system. And what did they come up with? Nothing. No deal could be reached on how to address the Continent's ills — just a vague promise of "unity."
But even that lame rhetoric was tested a day later, when Germany's Angela Merkel unilaterally decided to guarantee $1.3 trillion in bank deposits — a move that caught other countries unawares and forced many to do the same thing or face a run on their banks.
How things have changed in just a couple of weeks. Just a month ago, EU officials were giddily ridiculing the "U.S. model." Said Sarkozy then, in an obvious reference to the U.S.: "A certain idea of globalization is drawing to a close with the end of a financial capitalism that imposed its logic on the whole economy."
Now, the panjandrums of the European Union are panicked, blaming the U.S., banks and greedy American homeowners — everyone but themselves — for their financial troubles. But the EU also had a housing boom, and they too gorged on debt, encouraged by their governments, and created a regulatory straitjacket that their banks can't escape.
The inability of EU leaders to craft a common strategy on the financial crisis suggests the unity is something of a sham. EU bureaucrats are great at telling everyone what the exact definition of a Parma ham is, or how many olives must go in a jar. But when it comes to Europe's badly out-of-date financial architecture, no one there seems to have a clue.
Worse, there's been precious little common action to stave off the EU's growing bank crisis. They've left it up to the U.S.
The European Central Bank has added cash to the system, but so far so far hasn't cut interest rates. Does anyone seriously think inflation should still be the No. 1 worry of any central bank, especially with the IMF predicting Tuesday that banks could end up losing $1.4 trillion as a result of this crisis?
The answer is, of course, no. Yet, the last move the ECB made — in July — was to tighten rates, showing how out of touch it is with reality. Even Australia's central bank, understanding the gravity of the situation, slashed rates a full percentage point on Tuesday. What's the ECB waiting for? Panic in the streets? An economic shutdown?
Meanwhile, European leaders keep talking as if this was all a U.S. problem. Well, the EU talks the talk, but it doesn't walk the walk.
Fortunately, that's not the case in the U.S. Like it or not, our financial authorities have acted, cobbling together a $700 billion bank rescue at the Treasury and $1.2 trillion in short-term loans from the Fed. And Fed chief Ben Bernanke said on Tuesday that interest rates will be cut again if necessary.
By contrast, Europe has chosen a series of ad hoc responses but no coherent strategy. On Wednesday, for instance, Britain is expected to unveil its own bank bailout. That follows loan packages and bailouts crafted by Germany, Denmark, France and Italy for their troubled banks and consumer loan businesses.
President Bush is calling for finance ministers from the G7 nations — the U.S., Canada, Britain, France, Italy, Germany and Japan — to meet Friday to discuss heading off a world recession.
It's a good idea. But comments like those heard from Europe about the "end to cowboy capitalism" or the need for a "new era" of regulation are neither helpful nor smart. Maybe the Europeans will show up with some ideas for a change, and leave the snarky anti-capitalist, anti-American rhetoric at home.