It seems that whatever Europe does, the euro crisis just gets worse after a short while. Europe, or more correctly , the member states of the European Monetary Union (EMU), have helped Greece only to find out that they have to help it again and put much more money on the table. Portugal and Ireland have gotten the helping hand as well, but their troubles are still far from over. Now, there is increasing talk of Italy and Spain being the next in line, with Belgium and even France (it still has the highest rating score, Triple A, but could loose it in the not so far future) not far behind.
There are many things that Europe has done wrong since the beginning of the crisis. But nobody can really blame Europe for making mistakes. This is a unique crisis and European countries have zero experience with such a crisis. Moreover, they can not borrow a manual on how to solve a currency crisis is a monetary union that is not a fiscal union from the rest of the world, as it too has no experience with such a crisis. However, there are two issues one can blame Europe.
The first is that being more realistic about the crisis could have helped a bit. I have written about that part in an earlier blog, so I won´t repeat that here.
Prevention beats curing
I will focus on the second issue. Every MD knows that preventing an illness is much better that having to cure it. It is cheaper and it involves much less effort. So it is all about being able and willing to act pre-emptive in stead of reacting to developments. Europe has done just that, which by default (no pun intended) means Europe is always behind the curve.
Every new loan, new bail-out package (let us not debate on whether or not Europe has breached its once holy ´no bail-out´ clause from the Treaty on the European Union and just call a spade a spade) and every new mechanism (the crisis has given us many an abbreviation such as ESM and EFSF) has been a reaction to an escalation of problems.
The same applies to the last round of decisions, from July this year. Already a large group of economists and some politicians are saying that the EFSF needs to be beefed up. No prize for guessing when (because it will happen) that will happen: when once again the euro crisis takes a turn for the worse.
Handicap
The main obstacle preventing Europe from dealing with the euro-problem swiftly and forcefully is the fact that Europe is not able to act pre-emptively. Every increase in the firing power of the bail-out weapon has come after the euro crisis had gotten worse, never before that was the case. This is turn is caused by the fact that Europe has no fiscal or political union. Being a European leader does not mean one is automatically leader of Europe like Helmut Kohl or Francois Mitterand have been. Out there on the frontline, this means that national interests trump the European ones in a time when European interest should matter.
But that, sadly, is not the whole story. Behind the scenes, there is another fight going on, between European institutions. It is a good-old fight for power. The European Commission, the new European President, the European Central Bank, the European Parliament, the newly established EFSB (European Financial Stability Board), they all know perfectly well that this is the time when not only the crisis could be solved but also when it is determined where and how much power will be concentrated in the future. They are all fighting each other for a share of that power. And together they are fighting against the member states, because the more the member states get to say, the less is left over for European institutions. Just to complicate the things even further, there is also great deal of disagreement between the member states themselves.
The European Commission for example has really seen its say diminish. It attends the meetings of the European heads of State or Finance ministers, but its role has been confined to – I am exaggerating here – that of note taker. It is the national capitals that take decisions. Increasingly it is also the member states that implement the decisions and have the final say. The EFSF is a good example: the member states are providing the money and they decide when, how and how much a member state in trouble can draw the money. ´Brussels´ has no say.
Roadblock
The disagreement between the member states has also led to great divisions within the Board of the European Central Bank, which simultaneously is fighting fiercely to preserve its independence (or what is left of it) and prevent that Europeans lose their confidence in the ECB. Without their confidence that the ECB will keep the inflation low now and in the future, the ECB could as well shut its doors. Now, when the ECB needs to demonstrate unity, it does not. Instead, verbal fighting between its Board members has been a rule rather than a exception.
All of this is the reason why Europe cannot force a break-through on major issues such as whether or not to form a fiscal and/or political union or whether to improve the firing power of the EFSF. Put differently, the constant infighting between
European institutions among themselves and
together against the member states and
between the member states and
within the institutions (think ECB) and
within the member states themselves,
is why Europe cannot act before the euro crisis takes a turn for the worse and thus get in the drivers seat. As long as that roadblock is not towed away, I fear the euro crisis will just muddle through until either the crisis becomes too much for Europe or European economies start to grow like it were the nineties all over again.
#1 by Daniel on August 12, 2011 - 3:31 pm
I realise that English is probably your third or fourth language but all the same:
loose not the same as lose
instead written as one word in English
pse check how to use the verb prevent, as in prevent Europeans from losing confidence…
#2 by Spyro on August 12, 2011 - 9:35 pm
A (..the?) solution for this mess would be an initiative to amend every member state’s constitution to grant prerogative powers to every national government when it comes to EU-matters, while empowering the European Parliament to intervene if/when necessary. Perhaps create other checking mechanisms as well, elected or based on expertise/independence, or even go further and instead of beefing up national governments create special coalition bodies (lead by their respective ruling parties I guess) that would represent each member state in the EU. It’s just that the EU machinery needs to become detached from national bureaucracies. Obviously the current arrangement cannot work any more.
#1 A couple cases of incorrect language usage are but a drop in the ocean. Language is the means, not the end.
#3 by Rick Daudi on August 15, 2011 - 10:51 am
From the point of view of, say, Germany, there is no big crisis anyway. Inflation is low, the economy is growing slightly, so what more do you want? Only problem would be if other countries have to leave the euro. That would mean less income for German exporters and less interest from loans by German banks.
For the southern countries, this is different. But don’t they have their own politics (overspending, corruption, too much bureaucracy) of the last 20 years to blame for it? I can understand the German POV that this is in essence not a German problem. Why would they give up their low interest rates (issue eurobonds) to save the Greeks and Italians?
#4 by sjb on August 16, 2011 - 10:15 pm
@Rick
I think the Germans will take the eurobond route because the alternative (a banking crisis) is likely to cause interest rates to rise significantly and plunge the EU into recession.
#5 by Marcel on August 21, 2011 - 3:21 pm
Don’t these people realize that the euro is part of the problem? Its dragging us all down with the weakest. The sooner we’re out the better. And yes, non-EU non-Euro countries like Canada, New Zealand, Norway, Australia, Switzerland are doing better than the EU/Euro countries. Clearly, the EU/Euro are a drain upon wealth, slow growth down and threaten our prosperity. The sooner out the better. The Euro like the dollar is bankrupt, the ponzi scheme has nearly outlived itself.
#6 by Mike on August 23, 2011 - 12:57 am
Pozivam sve patriote Bos Posavine da se ukljuce u akciju Rusenja genocidne rs legalnim demokratskim sredstvima Svugdje i na svakom mjestu pogotovo javnim mjestima i ispred institucija Plakatima Letcima i drugim saopstenjima Zahtjevajmo BEZUVJETNO UKIDANJE DISKRIMINIRAJUCEG NAZIVA rs Uporiste i sve argumente imamo u svim mogucim rezolucijama o ljudskim pravima pa i po onoj Evropsko kojom se Odlukom suda iz Strazbura zahtjeva postivanje ljudskih prava i izvrsenje presude Sejdic Finci koja je samo uvod u stvarno i potpuno postivanje ljudskih prava Ukidanjem tog DISKRIMINIRAJUCEG nacistickog naziva rs ta genocidna tvorevina fakticki gubi smisao za svoje postojanje i time se ruse njeni zlocinacki temelji kao kula od karata Mi Hrvati i Muslimani Dervente kao i cjele Bos Posavine a i drzave RBiH imamo obavezu ustavom preuzetu 91 i moralnu i svaku drugu odgovornost da nikad ne prihvatimo naprotiv da svim sredstvima izbrisemo nepobitno DISKRIMINIRAJUCI naziv rs Nadam se da ce vec sutra u centru Dervente i ostalih gradova i sela osvanuti plakati sa takvim zahtjevima Pokazimo im da se nikada nece legalizirati jedna takva zlocinacka genocidna tvorevina pogotovo ne pod tim nazivom Ovom prilikom bi upozorio nacelnika Srpskog SUPA Dervente Milu Tadica kao i predsjednika opcine Derventa da ne pokusavaju ni na koji naci ometati idemokratsko izrazavanje volje gradzana Dervente jer u suprotnom opet smo na pragu 92 Ovaj put mnogo jaci i sposobniji rijeseni da ustrajemo na oslobodzenju Dervente i cijele Bos Posavine od Srpskih GENOCIDASA A sud i tuzilastvo u Derventi pozivam sa zahtjevom da hitno i neodlozno procesuira ratne zlocince Gen Slavka Lisicu gen Novicu Simica puk Savu Petrovica Panteliju Curguza bivseg milicajca iz sa Cardaka Ristu Stojicica Novu Pjeranovica kao i jos preko 2679 koji su na nasem spisku uz potpune dokaze o srbima ratnim zlocincim sa opcine Derventa
Imena nekih pripadnika JNA i drugih cetnickih formacija odgovornih za ratne zlocine na podrucju opcine Derventa:
1. Savo Jankovic, general, komandant Tuzlanskog korpusa JNA;
2. Momir Talic, general, komandant Drugog krajiskog korpusa Srpske vojske;
3. Novica Simic, general, komandant Istocnobosanskog korpusa Srpske vojske;
4. Slavko Lisica, pukovnik, komandant Srpske vojske;
5. Stublincevic, pukovnik, komandant Operativne grupe Tuzlanskog korpusa JNA sa sjedistem u Podnovlju;
6. Stanko Trajkovic, potpukovnik JNA, komandant vojarne “Zdravko Celar” u Derventi;
7. Ljubomir Obradovic, potpukovnik JNA, zamjenik komandanta vojarne u Derventi;
8. Sreco Sekulic, major JNA;
9. Nedeljko Stojcic, kapetan JNA;
10. Ivan Durin, kapetan JNA;
11. Suka, kapetan prve klase JNA;
12. Milivoje Petrovic, pukovnik JNA;
13. Miso Kecman, rezervni kapetan;
14. Ljubo Kalaba, rezervni kapetan;
15. Stamenko Ilic, rezervni kapetan;
16. Goran Popovic, rezervni kapetan;
17. Branko Radic, vodnik JNA;
18. Veljko Milankovic, komandant paravojne formacije “Vukovi s Vucjaka”;
19. Brane Mijatovic, kapetan JNA;
20. Andrija Bjelosevic, nacelnik Centra sigurnosti Doboj;
21. Dusan Vukovic, predsjednik opcinske vlade u Derventi;
22. Novak Novic, nacelnik Srpske policije;
23. Slobodan Bilic, odvjetnik;
24. Stojan Tatic;
25. Drasko Odic;
26. Nebojsa Preradovic;
27. Petar Andric, rezervni major;
28. Mitar Trivanovic, rezervni kapetan;
29. Risto Stolic, pripadnik Srpske vojske;
30. Zdravko Dekic, zvan Dzeri, pripadnik Srpske vojske;
31. Nusret Dizdarevic, rezervni kapetan;
32. Milan Vukovic, pripadnik Srpske milicije;
33. Dordo Radan, pripadnik Srpske milicije;
34. Vlado Budisic, pripadnik Srpske vojske;
35. Mihajlo Sainovic, zvan Mika, pripadnik Srpske vojske;
36. Zlato Nedic, pripadnik Srpske vojske;
37. Bogdan Perica, pripadnik Srpske vojske;
38. Radoslav Faladzic, pripadnik Srpske milicije;
39. Dusko Jovanovic, komandir Srpske milicije;
40. Luka Novic, oficir sigurnosti Srpske vojske;
41. Zoran Simic, pripadnik Srpske vojske;
42. Zoran Cecavac, pripadnik Srpske vojske;
43. Nikola Sundar, pripadnik Marticeve milicije;
44. Miroslav Bojanic, pripadnik Srpske vojske;
45. Tihomir Stojcic, pripadnik Srpske vojske;
46. Boro Bukavica, rezervni kapetan;
47. Gojko Lukic, porucnik JNA, upravnik logora Vijaka;
48. Jovanovic, kapetan JNA iz Nisa;
49. Dordo Nedic, pripadnik Srpske vojske;
50. Vid Nikolic, pripadnik Srpske vojske;
51. Dragan Predragovic, pripadnik Srpske vojske;
52. Nedeljko Malesevic, pripadnik Srpske vojske;
53. Marko Plavsic, pripadnik Srpske vojske;
54. Ranko Vrastanovic, strazar u logoru Bare;
55. Ranko Tesic, pripadnik Srpske vojske;
56. Ljubo Petrovic, kapetan;
57. Dragan Kuzmanovic, pripadnik Srpske vojske;
58. Zlatko Macan, pripadnik Srpske vojske;
59. Vujadin Vukelic, pripadnik Srpske vojske;
60. Braco Migic, pripadnik Srpske vojske;
61. Novo Pjeranovic, pripadnik Srpske vojske;
62. Zoran Ratkovac, pripadnik Srpske vojske;
63. Milan Tesic, pripadnik Srpske vojske;
64. Sasa Prosed, komandir specijalne jedinice Srpske vojske;
65. Stanko Vukmirovic, zvan Dulic, pripadnik Srpske vojske;
66. Slavko Ikanovic, zvan Sebura, pripadnik Srpske vojske.
67 Dzordzo Krekic Major JNA i direktor DEMOSA Derventa
68 Milan Anicic Cetnicki vojvoda [radio u TOD ]
69 Gadza Mihajlo[Miso] tenkista radio u UNISU
70 Gadza B Brat Misin pripadnik srpske vojske
71.Pantelija Curguz major vrs
72. Emil Vlajki KOS YU
#7 by Wim Roffel on August 29, 2011 - 12:27 pm
The problem is that the Southern wages are not competitive with the wages in Germany and that as a consequence the South has a trade deficit with the North. In the past we made up the balance by massive investment in the Southern property bubble and Southern bonds but that no longer works.
This all has very little to do with the lack of a fiscal or political union. If such a union had been in place we would still face the same problems. Such a union might actually have served as an obstacle by preventing the adjustment necessary to get the Southern countries back to a healthy trade balance.
#8 by Lawrence on September 2, 2011 - 9:37 pm
Marcel Fully agree with you.
#9 by Joe on September 19, 2011 - 8:35 pm
Absolutely nothing substantive happened at the ECOFIN “summit”. Nothing whatsoever. Geithner got some kind of slapping around in some sort of “vee must kick some tukhus” haze, and that’s about it.
Europe has been pretending to deal with this thing for two years. The entire global economy has been gyrating into and out of a state of knowing and not knowing if anything substantive will take place “this time”, only to find the smart ones accept that they can’t do much about insolvency, won’t do much about insolvency, and that there are still people whipping the market around because they actually believe that they will do something.
What they won’t do in the face of that sort of behaviour, is stop stuffing cash in their matresses instead of investing in the things that will get the economy moving.
Oddly enough, that is part of the banks’ problem. People are quietly withdrawing assets out of them, making their margin of deposits-to-loans even worse. My sense is that this is the only reason the US, Japanese, and the Swiss were invited – if not that, then to actually make it seem legitimate.
What’s worse is that the IMF, which should be just called what its almost always been – the EMF, is just as sceptical and likely shudders in the fear of having to go solo on this problem too.
Let’s face it – Europe’s macro-economics is being managed by a bunch of jokers who can neither map out a course of action in the next decade, nor are empowered to do anything about it.
#10 by Dan on November 11, 2011 - 1:47 am
‘Euro crisis’, ‘southern countries’, no Ireland or Iceland then.
After Euroland the Yanks [again] and then what?
Who are these bond markets, these banks, these credit rating agency’s….. Who?
Where are our freedoms, where is our democracy no matter how many $1m bombs we drop on the middle east.