Just a week ago I suggested that continental Europe seemed rather detached from the global credit crisis. Whoops! What terrible timing!
In the last seven days Europe has been hit by the storm force winds of this crisis. Liquidity has dried up, governments have been forced to rescue one institution after another, Iceland’s banking system seems close to meltdown, the Irish, the Greeks, the Danes and the Germans have promised open-ended guarantees for bank deposits and the European Commission has been left floundering as the cry of sauve qui peut echoes across the EU.
Even Peter Mandelson has been brought back to London to shore up Gordon Brown’s war cabinet.
The Paris meeting of the Big Four was a show of solidarity but little more. The participants looked forward to tighter regulation in the future, but offered nothing at an EU level to cope with the current crisis.
It is only the state aid rules which have offered any sort of EU framework for national measures and several banking mergers and bailouts have been rapidly approved.
Deposit guarantees are a different matter. Commissioner Neelie Kroes fiercely attacked the Irish government for failing to discuss its guarantee scheme with Brussels in advance. It seems that she has made some progress concerning the detailed application of the scheme but not in the fundamental principle of an open-ended guarantee. The Brits and the French may now be forced to introduce similar deposit security, especially if the Germans go ahead, but the taxpayer liabilities are formidable.
It all demonstrates the massive cross-border implications of such measures. Inside or outside the eurozone, Europe must find ways to work more closely together in tackling the crisis.
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