The continent is handling the crisis much better than it seemsby C. Fred Bergsten / November 16, 2011 / Leave a comment
Most Americans, and probably most other non-Europeans, view the eurozone’s handling of its crisis with something between dismay and disdain. The authorities’ endemic failure to get ahead of events has continually roiled markets, and fosters deep doubt that Europe can avoid prolonged recession or, worse, widespread default, euro exits or even a breakup of the single currency. The cacophony among—and frequently within—the member countries prompts confusion and understandable charges of ineptitude. The Greek flip-flops of recent months, and the latest Italian turmoil, have exacerbated this negative impression.
Yet Europe has performed much better than it has talked. Each phase of the crisis has been resolved effectively, albeit without yet dealing definitively with its fundamental causes. The politicians and the voters, not least in Germany, scream—but carry out the required policies.
Of at least equal significance, European institutions have demonstrated that they can both mount successful crisis responses, and evolve rather dramatically toward plugging the huge gaps in the economic and monetary union. The European Financial Support Facility (EFSF) is rapidly becoming a European monetary fund that, along with the European Central Bank (ECB), can attach tough conditions in return for the money provided to troubled countries and institutions. The EFSF also represents the embryo of the eventually inevitable fiscal union of the eurozone. The European Banking Authority is en route to becoming a eurozone-wide financial regulator and superviser. Most importantly, for a long period of time, the ECB lent without limit as needed to quell each successive round of the crisis.
International perceptions of Europe’s ability to cope with, and ultimately overcome, the crisis would be far more positive if they focused on the region’s actions, rather than its statements. This dichotomy is consistent with the entire history of the European integration project. It has faced numerous crises over the past half century, but has always responded with two steps forward, after one or more steps back. It is not much of an overstatement to suggest that Europe moves forward largely through crises rather than architectural planning. As Jean Monnet, the famous French diplomat, presciently proclaimed: “Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.”
The chief problem today, then, is that the eurozone leadership cannot say what the markets want to hear—despite being virtually certain to deliver the desired outcomes, albeit sometimes later rather than sooner, and often in convoluted…