The oncoming European sovereign debt crisis continues to barrel down the road at 65 miles per hour, and European leaders are still frightened and frozen in the headlights like a hapless herd of deer.That at least is the read on this weekend’s IMF summit in Washington DC, where apocalyptic warnings by the normally laid back US Treasury Secretary Tim Geithner and europhile investor George Soros failed to stir EU leaders into anything like effective action. There was some progress toward increasing the size of the bailout fund and deploying it more effectively, but there was no political agreement on the proposals and German officials still seem ready to reject anything that violates the letter of restrictive no-bailout clauses in the relevant EU treaties.In Greece, there are increasing signs that the country lacks the will for yet more austerity. A Gallup poll shows a sharp decrease in Greek well being; the number of Greeks who say they are thriving has fallen from 44 percent in 2007 to 14 percent today and those who say they are ‘suffering’ has increased from 7 percent to 24 percent during the same period. Taxpayer revolts, strikes and demonstrations are spreading across the embattled nation and it seems less and less likely that Greece can or will fulfill the conditions the IMF and its European partners are demanding in exchange for more aid.Writing in the Financial Times, columnist Wolfgang Munchau puts it all together, saying that the European strategy has unraveled because what started out as a small crisis in peripheral economies like Greece has morphed into a major crisis involving countries like Italy, and instead of preparing for major shocks the Europeans have been living in denial. “Stress tests” were so obviously flawed that confidence in the honesty and competence of European authorities has been seriously damaged; Munchau now estimates that European banks may need as much as $700 billion (€500 billion) in new capital to offset their losses. The political and legal barriers to quick action are formidable, especially but not only in Germany, and while solutions can still be imagined, it is increasingly difficult to see how they can be implemented in a timely fashion.Concludes Munchau: “I have never seen European policymakers as scared as I saw them in Washington last week.”The deer stare, horrified, immobilized at the truck; the truck grinds remorselessly on.
EU Deer Still Frozen in Truck Headlights
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