October 13, 2008
European leaders have been so busy gloating over the U.S. money mess that they have failed to notice their own overregulated banking system is in even worse shape. Even though French President Nicolas Sarkozy called an emergency meeting of European leaders to address their fast-melting financial system, no deal could be reach on how to address the continent's ills -- just a vague promise of "unity," says Investor's Business Daily (IBD).
But how has the European Union found itself in this precarious position? Just a month ago, EU officials were giddily ridiculing the U.S. model, now they are panicked, blaming the United States, banks and greedy American homeowners -- everyone but themselves -- for their financial troubles. But the European Union also had a housing boom, and they too gorged on debt, encouraged by their governments, and created a regulatory straitjacket that their banks can't escape, says IBD.
Worse, there has been precious little common action to stave off the EU's growing bank crisis, says IBD:
- The European Central Bank has added cash to the system, but so far has not cut interest rates; banks could end up losing $1.4 trillion as a result of this crisis.
- Europe has chosen a series of ad hoc responses but no coherent strategy.
- Britain is expected to unveil its own bank bailout that follows loan packages and bailouts crafted by Germany, Denmark, France and Italy for their troubled banks and consumer loan businesses.
Moreover, European leaders keep blaming the United States for their problems, but unlike EU officials, U.S. financial authorities have actually acted, cobbling together a $700 billion bank rescue at the Treasure and $1.2 trillion in short-term loans from the Fed. They will even cut interest rates again if necessary. Maybe "cowboy capitalism" is just what the EU needs, says IBD.
Source: Editorial, "EU's Do-Nothings," Investor's Business Daily, October 7, 2008.
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