Milton Friedman always said that the European Union would not survive a deep recession. Well, that theory is certainly being put to the test now. As the financial crisis radiated across the globe this week, the EU fell into disarray as an ugly bout of tit-for-tat policies helped fuel a rout of European banks.
It began with Ireland’s decision on 30 September to guarantee the deposits of its six main banks. This was a chance for European leaders to shore up banking confidence across Europe, says Leo McKinstry in the Daily Express. But instead of rallying behind the decision, German Chancellor Angela Merkel condemned it. Yet that didn’t stop Greece from pledging to guarantee its own banks.
And “as quick as you could say kartoffelpuffer,” chimed Sue Carroll in the Daily Mirror, “Merkel did a U-turn and announced her government would guarantee all private saving as well.” In the end, EU ministers did manage at least to agree to lift the guarantee on savings deposits across the eurozone to around e50,000 – but that was less than half what some member states asked for.
“Europe’s response has been a deadly mixture of confusion, paralysis, disunity and warped priorities,” said McKinstry. Maybe that’s not such a bad thing, said Janet Daley in The Daily Telegraph. After all, the one thing they could agree on was the impossibility of a unified solution. French President Nicolas Sarkozy spoke of different cultures and needs.
And he’s right. Germany does not have the same property-owning traditions that produce house price booms. And the UK has far greater credit liabilities than France. There will never be a one-size-fits-all solution to Europe’s economic problems. That’s why, “when the chips were down, they were not going to jeopardise their own national economies for the sake of some phantasm called economic union”.
Some say the EU simply isn’t designed to deal with this kind of crisis, says Nicholas Kulish in The New York Times. Without a central finance ministry like the US Treasury Department, it is tough to coordinate a quick economic solution. Moreover, Europe is divided. Ireland’s rejection of the Lisbon Treaty in June and a mixed response to the invasion of Georgia makes European governments seem “dazed and confused”, Deutsche Bank’s Jim Reid told MarketWatch.
Less than a fortnight after German Finance Minister Peer Streinbruck rejoiced at the “USA losing its superpower status in the global financial system”, EU leaders have some serious soul-searching of their own to do. What’s the German for Schadenfreude?