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System failure

From Brussels to Washington - international politics is engaging in an intense effort to pave the way for a new financial system. How should Europe react to the crisis on the financial market? Will Europe's own special approach suffice or do we really need a new global financial order?

In times of crisis, people come together. This is why for weeks now the leaders of the European states have jointly been seeking a way out of the global crisis on the financial market. However initial attempts to find a common basis for a pan-European response to the crisis did not meet with success. Europe's press expressed its disappointment at the failure of the heads of state and government of Germany, Italy, the UK and France to agree on a European rescue package at a meeting in Paris on October 4.

Lack of unity

"The fact that the leaders of the biggest economic powers of Europe could come up with no common strategy once more demonstrates that the European Union is still far from being the economic and political authority it aspires to be," wrote the Dutch daily Trouw on October 6, adding that only time would tell whether the carefully constructed economic and monetary union can survive this financial storm.

The curve of German stock index Dax next to a sign showing a fire extinguisher in Frankfurt, September 2008.

Photo: AP/Michael Probst

Writing for the Italian daily La Repubblica, Federico Rampini blamed Europe's lack of political unity for the rejection of a bailout package: "After creating a common currency and allowing its banks to become uncontrollable giants through international mergers, the EU must now acknowledge the system's lack of political integration." And at the summit of Eurozone finance ministers that followed on October 6 in Luxembourg, the ministers were only able to agree on an emergency plan. This prompted the Stockholm newspaper Dagens Nyheter to conclude on October 8 that a unified plan of action for countering the financial crisis was lacking. Thus attempts to engineer a rescue operation like that in the US, where a bailout package worth 700 billion dollars and aimed at rescuing tottering financial institutions had already been put together by late September, initially failed.

A way out of the crisis?

It was only at a meeting of the Eurozone states in Paris on October 12 that the leading representatives of the 12 Eurozone countries finally drew up a joint action plan for stabilising the financial markets and guaranteeing the liquidity of banks and savings deposits. The UK announced the largest cash injection - up to 660 billion euros to save its ailing banks - while Germany provided capital and guaranteed loans to the tune of 480 billion euros for its institutions. Other European countries also pumped billions - albeit on a lesser scale - into their struggling bank sectors. "The best thought-out proposals for a way out of the crisis, and even more importantly for constructing a healthier financial system came from Europe and particularly from the UK," the French business paper Les Echos stressed on October 13, concluding that it was now the task of a somewhat more united Europe to lay the groundwork for a better-regulated financial system.

In particular the UK's troubled prime minister Gordon Brown, who showed unexpected competency in the crisis, received praise in the media.
This time Europe's press rejoiced at the stability of Europe's institutions in times of crisis: "What would have happened if the European economies didn't have the double protective shield of EU institutions and the euro doesn't bear thinking about," wrote the Hungarian daily Népszabadság on October 14. "The past few weeks have given us the following insight: without genuine political union Europe is not in a position to find answers to crises other than those it recently managed to produce only after immense efforts." The Spanish daily El País saw the European Union, bolstered by the Eurozone and the European Central Bank, as having a double advantage: "Firstly, it is not the cause of the crisis, which proves that its market is better regulated. And secondly - even though this may sound insulting to British ears - it has its own model."

Sarkozy's initiative

Even though the media greeted the joint EU action plan, for many the calls of the holder of the rotating EU Council presidency Nicolas Sarkozy for an institutionalised European "economic government" went too far. "Sovereign wealth funds with investments in key industries? And that coming from leading conservative politicians of all people. What on earth will come next? How about a central planning authority, preferably one for the whole of Europe," the blog of German business paper Handelsblatt huffed on October 22. In a similar vein the Spanish daily El País noted that one could detect Sarkozy's overpowering urge to "lead Europe with initiatives that so far have failed and at the same time reaffirm the French interventionist model in companies." And in an opinion piece published on the same day in Mladá fronta DNES, Sarkozy's Czech counterpart Václav Klaus warned: "Let us not attempt to erect new, artificial systems that are directed even more than before against a normally functioning market." By contrast Italian daily Corriere della Sera voiced approval of Sarkozy's plans on November 7, arguing that a European economic committee - a kind of G4 including the UK, even though the latter did not belong to the Eurozone - was necessary.

High Expectations

Notwithstanding several European initiatives, and encouraged by the G20 summit of the twenty major industrialised and emerging economies (G20) which took place in mid-November in Washington, Europe's newspapers increasingly pinned their hopes on global solutions for a reform of the international financial system. "[The G20 meeting] does offer a chance for some of the rich economies to undo some of the damage they have done to global economic co-ordination over the past decade," the Financial Times wrote hopefully on November 3.

But according to the Romanian daily Gandul on November 10, the summit was no more than a first stage. Europe needs to make a stand, wrote the Financial Times Deutschland that same day: "If the Europeans stand united in Washington the force of their arguments could play a decisive role in influencing the reform of the global financial markets." Many newspapers saw the historical meeting as a second Bretton Woods conference heralding "a new world order in which non-Western countries like China play a more important role," as the Dutch daily Trouw put it on November 14.

A new world order

So on November 17, after the G20 summit which paved the way for the greatest reform of the international financial system in 60 years, the press unanimously concluded that the bipolar world order had come to an end. "From now on the G20 - which has expanded to include China, India, Indonesia, Brazil, Argentina, Mexico and South Korea as members - will be the decisive multipolar circle for solving the problems of the world economy," wrote Swiss daily Le Temps. "The summit in Washington turned into a meeting at which a number of the world's major emerging economies became full members tasked with helping to steer the global economy," the Danish daily Politiken chimed in. "The West will have to grant the countries it once pushed aside more power in international financial institutions," the Slovenian daily Delo concluded. And in the German daily Frankfurter Rundschau one could even read: "The post-war order of the global economy has come to an end in Washington: The G7 is dead. Long live the G20! A learning process of politics in double-quick time has begun."

Nonetheless, many papers were also quick to warn that one should not expect too much of the summit, at which the participating states and representatives of the Bretton Woods institutions [the World Bank, the International Monetary Fund] agreed to subject financial markets to heavier supervision, launch programmes for stimulating the economy and refrain from putting up new barriers to investment and trade. The Danish daily Berlingske Tidende wrote that the summit could only be a first step towards a new global financial order, noting that the results were vague and that it was difficult to tell whether the meeting represented the beginning of the end of the financial crisis. "But there can be no doubt that the heads of government will only commit to binding agreements at the next meeting," it concluded. The Spainsh dialy ABC saw "white smoke after a long work process that, although it won't end the financial or economic crisis, will certainly ensure that the international community has better instruments at its disposal to identify, deal with and solve a crisis. No more and no less."

There was, however, general consensus that a binding agreement for a new financial architecture would not be signed by the heads of state and government before the next meeting of the G20 in April 2009. Therefore it would be "another 136 days before we find out in London whether these plans will indeed lead to the construction of a coherent platform that can restore confidence in the global market economy," the Portuguese daily Diário de Notícias pointed out, stressing that the participation of the government of US president-elect Barack Obama would play a significant role. The future head of state of the world's largest economy was not present at the G20 summit in Washington.

Andreas Bock

Andreas Bock, born in Kaufbeuren in 1978, works as editorial assitant for euro|topics. Before joining the editorial team he worked as a cultural manager for ...
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