Are the US & European leadership acting irresponsibly?

later12

It is arguable that since the world financial crisis first emerged, European and American political leadership have remained stubbornly behind the curve on the various sub-crises. At no time has this both been more pronounced and more unforgiveable than in the past three months.

The way in which the US political leadership and the various European political and financial authorities have blithely accommodated slowly worsening crises in their respective jurisdictions to burn into an all out meltdown on the stock markets today is bizarre.

Focusing particularly on the European situation, the failure of the Europeans to act decisively and send a clear message of either disintegration or of further European integration to the financial markets - either which everybody seems to admit is actually required - is mind boggling. Something must happen - we know this, they know this, the market knows this - but they refuse to speak.

Not only are European politicians placing the European economy in serious risk, they are also doing serious damage to the global economy.

There is no need to go too much into the turmoil, but some of the more glaring figures might be that out of the 500 stocks in the S&P 500, just 5 were up at close of trading - 495 were down, many heavily. The story was similar elsewhere with the Dow Jones which amid huge volumes, had in excess of 4% wiped.

Of course, this situation is aggravated by the US Economic outlook - which again is down to failures of politicians to engage with their differences and inability to stop inhibiting economic progress in that country.


When the global financial crisis first emerged, it was a crisis that, notoriously, caught a lot of investment banks by surprise.

Yet what is so unforgivable about the present crisis is its slow burning nature, and the way that it was seen to have deepened and worsened for months and months, and politicians sat back and watch it happen.

Perhaps most exasperating of all the news stories that I have read today is that as investors signal a deep unease with the size of the EFSF, its capacity to buy peripheral debt, the ECB and its SMP programme, and deepening uncertainty about the future of the Euro, Angela Merkel is taking holidays and refuses to publicly address the issue.
http://www.irishtimes.com/newspaper/finance/2011/0805/1224301873311.html

As markets plummeted across Europe, Merkel has not even been in contact with her international colleagues - only tomorrow will she speak on the telephone with Nicolas Sarkozy, for example.

So, with apologies for the long post, my question is simple: are the US and EU political and financial authorities not acting extremely irresponsibly in allowing this well-signalled crisis to have grown to its current magnitude, and threaten financial stability on an enormous scale?

nesf

It's simply a matter of short term political vision versus long term economic need. Germany in particular is hamstrung by upcoming elections that make any decisive action very hard to make due to problems it'd create at home. The politicians will have to be forced to jump by the markets, they won't jump before then.

In the US it's more of a problem of a deep ideological divide and the past two elections wiping out the moderates in both parties. You've a highly fiscally conservative (US style) wing in the Republican party that's seizing on this chance to push through reforms it thinks the country needs. Compromise and a "grand bargain" would be better for the economy in the long term but instead you have short term ideological gains being made.

I've less problems with Europe where the issue is simple politics than the US where it is ideological since I believe that Europe can be forced to the bargaining table a lot easier than the US can be.

later12

Actually I think Germany is unique among the AAA rated countries in the European issues do not tend to dominate elections in that country - unlike, say, Finland with the True Finns or France with the hard nationalist FN & Marine Le Pen. Euroscepticism is practically absent from the German political establsihemnt - even Merkel's opposition (as well as her ideological competitors in Parliament) are in favour of her European and common monetary policies. Europe has not dominated any German election since the crisis began.

The Eurozone has seven AAA rated countries, and seventeen countries overall - there will always be upcoming elections. If not in Germany, then in France; if not in France and Germany, then in Austria and the Netherlands, or Spain and Italy.

In any event, it has always been known, since the announcement of the Greek default and the reform of the EFSF, that the EFSF had to be supersized if it was to go into the secondary markets and embark upon bond purchases for major European economies like Spain and Italy, as well as proceed with small peripheral bailout. It just had to - otherwise the numbers don't add up.

And nobody bothered. Even today, nobody is saying anything about this. Olli Rehn today, despite admitting that European leaders need to perform and communicate better, and despite admitting failings, nevertheless said nothing to soothe market fears about the EFSF. The ECB are not buying Spanish or italian debt - even yesterday, when the Italian yield hit 6.2%, the ECB were buying Irish and Portuguese debt. None of this is making sense.

2.5 trillion euro was wiped of stock markets this week - we are looking into the abyss of another major global recession as what appears to be panic selling continues - and the best we are getting from the political leadership of Europe are seperate phone conversations - one between Merkel and Sarkozy and one between Sarkozy and Zapatero. The only people who actually seem to be grasping the seriousness of what is happening are, ironically, the members of the unelected European Commission.

Zubeneschamali

later10 wrote: »

the best we are getting from the political leadership of Europe are seperate phone conversations - one between Merkel and Sarkozy

Sarkozy: Do you think the voters are scared enough to back real European Union yet?

Merkel: Not yet, but maybe when I get back from my holidays.