Tuesday, June 12, 2012

European Crisis Commentary

by Calculated Risk on 6/12/2012 04:08:00 PM

Some interesting articles ...

From Brad DeLong and Barry Eichengreen: New preface to Charles Kindleberger, The World in Depression 1929-1939. A brief excerpt:

The parallels between Europe in the 1930s and Europe today are stark, striking, and increasingly frightening. We see unemployment, youth unemployment especially, soaring to unprecedented heights. Financial instability and distress are widespread. There is growing political support for extremist parties of the far left and right.

Both the existence of these parallels and their tragic nature would not have escaped Charles Kindleberger, whose World in Depression, 1929-1939 was published exactly 40 years ago, in 1973. Where Kindleberger’s canvas was the world, his focus was Europe. While much of the earlier literature, often authored by Americans, focused on the Great Depression in the US, Kindleberger emphasised that the Depression had a prominent international and, in particular, European dimension. It was in Europe where many of the Depression’s worst effects, political as well as economic, played out. And it was in Europe where the absence of a public policy authority at the level of the continent and the inability of any individual national government or central bank to exercise adequate leadership had the most calamitous economic and financial effects.
From Mark Blyth and Matthias Matthijs at Foreign Affairs: The World Waits For Germany. An excerpt:
So Germany has shifted, but not enough to make any real difference to the outcome. Germany is both devoutly anti-reflationary and leadership averse, which is the worst possible combination at the worst possible moment. It would be nice, to use an American expression, for Germany to step up to the plate and put its full economic weight behind a fiscal and a banking union, including euro-denominated sovereign debt. But for reasons of history and ideology, as well as political and economic context, Europe may well be about to re-run Kindleberger's 1930s ...
And from Sebastian Mallaby at Foreign Affairs: The Fate of the Monetary Union Lies in Germany’s Hands

And from the WSJ: ECB Says Euro Zone Needs Banking Union
The European Central Bank repeated its call for a common banking union to shore up the euro zone's financial system, even as Germany's central bank warned such proposals are "premature" and risky.

The ECB's No. 2 official, Vitor Constancio of Portugal, also said the central bank should have the power to supervise large European banks, saying it has the institutional resources and knowledge to perform such a task.
"There is a need to…conceive a banking union as an integral counterpart of monetary union," the ECB said in its semiannual financial stability review. Such a union would include euro-zone-wide bank supervision, deposit guarantees and a funding mechanism from banks.