There is a popular theory in Brussels that a crisis is good for the EU because only seismic events prompt decisive steps in the bloc's integration. That notion is being tested by the whirlwind sweeping through the economy—and the initial signs were not promising for the pro-Europeans. When the crisis struck in the US, the initial European reaction was inaction. That was followed by panic and a lack of co-ordination as governments scrambled to shore up national systems.
Ireland's decision to guarantee deposits in its own banks provoked ill-disguised fury, managing the rare feat of uniting Britain, Germany and the European commission in opposition. Neelie Kroes, the European competition commissioner who had been kept in the loop over the initial plans to rescue Belgium's biggest bank Fortis, was given only peremptory warning about the Irish plan. "She was rung only a couple of hours before the announcement and told it was happening," said one commission source. "Steely Neelie" was not amused.
Fearing a mass switch of savings from British to Irish banks, Gordon Brown was even less happy. Angela Merkel, the German chancellor, fumed about the Irish scheme at an ineffectual meeting of the "G4" big European economies on 4th October, called hastily by French President Nicolas Sarkozy. By Sunday, Merkel had herself offered an—albeit subtly different—guarantee for German bank depositors. Meanwhile a Belgo-Dutch-Luxembourg plan to save Fortis disintegrated when the Dutch government decided to nationalise the Netherlands arm of the bank. And the details of a Franco-Belgian bailout of Belgium's Dexia provoked an angry exchange between Kroes and officials in Paris. With European solidarity in such short supply, Italy's ex-commissioner, Mario Monti, argued that the EU faces a choice: further integration or disintegration.
Of course, it is inevitable that when a crisis requires spending a lot of money—to guarantee bank deposits or bail out banks—a huge gulf opens up between the EU rhetoric of political solidarity and the fiscal reality. Because the EU has virtually no money of its own, only national governments can tax and spend on any significant scale.
But, after the initial stuttering, there have in fact been subsequent aspects of the reaction to the crisis from which both sides of the European debate can draw comfort. It is true, partly for the fiscal reasons mentioned above, that individual EU governments went their own way—and the idea of a pan-European bank bailout fund did not get very far. At the same time, the crisis illustrated the stark reality of the EU's cross-border rhetoric. The meltdown afflicted countries inside and outside the single currency: the failure of the Icelandic internet bank Icesave affected savers both in Britain and in eurozone Holland. Hence Gordon Brown was invited to a eurozone leaders' summit in Paris. Moreover the crisis affected both governments committed to deregulation, and advocates of greater intervention. Nations with differing traditions of home ownership and mortgage arrangements have also succumbed.
In the end, European leaders began to understand that point. The second of Sarkozy's emergency summits—called for the eurozone on 12th October—succeeded at least in providing a common structure for intervention to shore up ailing banks, even if the detail was left to each national government. What's more, the EU states were seen to be getting their act together without prompting from Washington—indeed, while the Americans were still floundering. Expect more ideas over the coming weeks such as a pan-European "college" of regulators to oversee the banking sector.
And while it's true that Europe often failed to act as one or to produce a coordinated response, it's interesting that the public expected it to. That is the best sign for pro-Europeans.
McCreevy's a convenient scapegoat
Meanwhile, critics of Anglo-Saxon economics have not had to search hard for their scapegoat. The internal market commissioner, Charlie McCreevy, presided over the boom of the low-tax Irish economy as the country's finance minister, and brought his faith in the free market to Brussels. He never really believed in regulation. Early in his tenure, he received a hostile reception as an after dinner speaker in the City of London when he defended the commission financial services rules called Mifid. Very few regulatory initiatives flowed thereafter. So when McCreevy was appointed to an EU steering group on the financial crisis, the decision was denounced as "the arsonists taking over the fire brigade" by the Socialist group leader in the European parliament, Martin Schulz.
In private, Sarkozy is equally scathing of McCreevy's record and has made his views known to the commission president, José Manuel Barroso. No supporter of heavy-handed regulation himself, Barroso might be expected to spring to the defence of his Irish commissioner. However, Barroso remains terrified that Sarko will withdraw support for the one thing that really matters to the commission president: the renewal of his mandate next year.
