Editorial | Sunday Observer
By DAVID C. UNGER
Cyprus finally got a revised bailout plan last week. It taxes big,
uninsured bank depositors to pay part of the cost of restructuring the
country’s two biggest banks while leaving the savings of smaller,
insured depositors untouched. But just days before, Cyprus, with the
blessings of the smartest bankers and smartest finance ministers in
Europe, came within a whisker of adopting a truly reckless plan that
would have taxed small savers, undermined deposit insurance and risked
sparking disastrous bank runs elsewhere, notably Italy and Spain, the
euro zone’s third- and fourth-largest economies.
Europe urgently needs to ask itself these questions. This month’s close
call was hardly its first brush with self-inflicted disaster in the
three-year-old euro crisis; in 2010, loose and premature talk by French
and German leaders about involuntary loan write-downs of private-sector
loans needlessly scared off potential lenders. And unless some drastic,
though politically difficult, changes are made in Europe’s outdated
decision-making machinery, it probably won’t be the last.
The basic problem is that the E.U. is not a true union but more a
collection of states that have not in any real sense ceded
decision-making power to a central authority. The result is chaos fed by
conflicting national objectives. In the Cyprus case, German politicians
wanted to minimize bailout costs to German taxpayers in an election
year. Cyprus’s president hoped to keep the island an attractive haven
for foreign depositors. The I.M.F. insisted that Cyprus not be lent more
than it could pay back. And the new leader of Europe’s finance
ministers, a tough-talking, austerity-preaching Dutch finance minister,
wanted to make a point about debtors paying for their own bailouts. All
of them somehow initially settled on the lowest common denominator: a
bizarre scheme pinning much of the responsibility and most of the pain
on small, insured depositors in Cyprus’s banks.
Wiser heads would have squelched any such plan before it was announced.
Even though the proposal was later dropped, the public — justifiably
worried that its leaders could make the same dumb mistake again —
quickly lost confidence in the deposit insurance every E.U. country has
been required to have since 2010 as a safeguard against bank runs. That
confidence will take years to rebuild.
None of these European leaders would sign off on such high-wire
financial policy experiments in their home countries. Why do they do it
on the wider European stage?
Part of the answer lies in the way the E.U. was put together
in the 1950s and ’60s as a loose union of jealously sovereign states —
somewhat like the United States under the original Articles of
Confederation. That posed no insuperable problems for the six-nation
coal-and-steel community and free-trade zone that the European Common
Market was at the time.
But as the E.U. has grown larger (Croatia will become the 28th member
state later this year) and more ambitious (17 countries now use the
euro), that loose and decentralized structure has begun audibly
creaking. Instead of preserving sovereignty and nurturing democracy, it
has created a situation where paymaster nations like Germany seek to
impose the policy preferences of German voters on other states without
regard to economic circumstances. It makes no sense to raise taxes and
slash jobs when economies are already in free fall. But that is what the
E.U. is now demanding be done across Southern Europe, with disastrous
economic and political consequences. A better governed E.U. would put
more emphasis on reviving growth in the south and stimulating consumer
demand in the north.
But there is not much European vision among today’s top national
leaders. No Helmut Kohl or François Mitterrand sits among them to bring
fellow leaders to their senses before local political motives lead them
into continentwide blunders. There are plenty of smart politicians
attending E.U. summit meetings and plenty of capable European
commissioners keeping the Brussels bureaucracy whirring. But there are
no Alexander Hamiltons or James Madisons pushing for the interests of
Europe as a whole, not just the interests of Germany, France, Finland,
the Netherlands or Cyprus — even as ambitious projects like the euro
have increased the need for coherent and consistent rules and policies.
The European Central Bank president, Mario Draghi, has occasionally
tried to step into the leadership gap but is constantly reminded that he
can be only as “European” as Germany, the bank’s most important
shareholder, will permit.
So while the euro will likely survive Europe’s recent stumbles on
Cyprus, it will survive unnecessarily weakened by avoidable mistakes.
Someday Europe may produce leaders willing to grapple with the task of
building sustainable European economic institutions. Until then, the
union seems doomed to lurch from one mismanaged crisis to the next.
No comments:
Post a Comment