Tuesday, June 5, 2012

Is Europe Lurching Toward a United States of Europe?

Being in Germany and reading a lot on the euro crisis, I wonder if it is similar to what it would have been like in the months leading up to the Constittutional Convention that generated the U.S. Constitution in 1787.  The loose confederation of states was perceived as not working well. The men at the convention tried to hammer out a new government that would provide more integration among the states and establish a federal system with checks and balances, powers retained by states, and a federal government above all.

Each day here new articles appear that suggest further integration, then counter views, and then another step towards further integration.  Today is an example. According to an article in today's NY Times,  Germany is signalling some willingness to pooling of debt but not eurobonds. (Article is here). An article in Financial Times writes of Germany banks oppositon to some forms of a stronger banking union. The European Central Bank meets Wednesday and some speculate it may try to do more because Europeans are getting very nervous about the euro crisis. (Article is here.)

A Financial Times op-ed argues that Europe needs a Lehman moment and a Greek exit could provide that. A former head of UK Investments with Lehman Brothers, Michael Tory, writes that the American public suffered from bailout fatigue after bailouts to Fannie Mae, Freddie Mac and Bears Stearns.   Attempts to stop contagion bank by bank wasn't working and a recapitalization of the banking system was needed. There was just no political will for that action.  The Lehman bankruptcy changed things. Quickly action was taken as Ben Bernanke and Treasury Secretary, Hank Paulsen, scared Congressional leaders into action. TARP was the end result.  Tory argues a Greek exit could provide the same stimulus to action and force European leaders to take action. Tory writes, "They would face a very clear choice: unite immediately behind a comprehensive fix to secure the countries next in line (Spain, Portugal, Ireland etc) or watch the entire eurozone project disintegrate."

One part of the Lehman story Tory leaves out.  The American public did not like TARP. This is true for those on the left and the right.  Republicans who voted for TARP faced Tea Party candidates in primaries in the 2010 elections and most of them lost to the Tea Party candidates.  The politicians may have done the right thing, but they paid a price for doing so.  Might some European politicians take that as a lesson from the American experience?

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