The Lehmann
Letter (SM)
The news from Europe – and around the
world - is so gloomy that it’s difficult to find an upbeat article in the
morning newspapers.
One problem: The roadmaps showing the
way out of crisis are long term, while there is no clear short-term route.
See, for instance, the following story
in today’s New York Times:
“European Central Bank Endorses a Banking Union”
Here are the opening paragraphs:
“The European Central Bank called on Tuesday for euro zone leaders to form a “banking
union” to oversee its big banks, a move that would help shield countries and
their taxpayers from the misfortunes of their troubled lenders.
“A banking union might
address one of the causes of the euro crisis:
the tendency for sick banks to undermine entire countries. The costs of
taxpayer-financed bailouts in Ireland and Spain, among other countries, were so
large that they raised questions about the creditworthiness of national
governments.
“Such a union would also
allow euro zone countries to share the financial burden of banking crises,
perhaps avoiding a repeat of Spain’s woes caused by Bankia and other ailing
lenders.
“In
a report issued Tuesday, the central bank said it envisioned that euro zone
countries would share responsibility for regulating big banks and for managing
a common deposit insurance fund. Countries would also create procedures for
winding down terminally ill banks so taxpayers would not have to bear the cost,
the bank said.”
That looks so good it
raises the key question: “When?”
The article continues by
saying that such a union must await the future and would require several years
to implement. But it does tie in well with German Chancellor Angela Merkel’s
insistence that the solution for Europe is, “More Europe.” By that she means
that Europe must bind itself more closely together, going beyond a common
currency and a common banking system. Europe must create a fiscal union with
central authority over government taxing and spending decisions. In other
words: A United States of Europe.
If that is the long-run
solution – and this letter believes it is – then how does Europe survive the
short-term crises now confronting it? What is - where is - the roadmap? There was,
unfortunately, nothing in today’s paper that made this clear.
(To be fully
informed visit http://www.beyourowneconomist.com/)
© 2012
Michael B. Lehmann
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