As the US Congress debates today over the new version of the bailout bill, Europe is also scrambling to come up with solutions to the crisis which, although not of their making, has come to their shores. Despite overconfident assurances even recently that Europe would be immune to the American economic plague, it is clear now that the old world will be affected and there is consensus - unlike in the US - that drastic government action will be needed. But who should take the action? Right now the big debate raging is this: should there be a coordinated EU-level effort to deal with the crisis, or should each country deal with it in their own way tailored to their own situation?
It is not a simple question, and goes well beyond traditional euroskeptic/eurofederalist divisions. With the way the EU is currently set up (and while it still runs on the pre-Lisbon Treaty system), it would likely not be able to act quickly enough for any kind of big pan-European action like the US's bailout bill. But on the other hand, if each county just does it's own thing it could result in chaos and conflicting actions, particularly for the countries within the Eurozone that use the same curency and are regulated by the European Central Bank.
The pitfalls with the 'every man for yourself' plan were already seen earlier this week when Ireland went ahead unilaterally in implementing a savings guarantee program for its banks (similiar to the FDIC in the US) without notifying Brussels. The EU was not too pleased about that, but Irish politicians said that consulting Brussels would have taken too long and the government needed to act quickly. However right after they did it other European countries, most notably the UK, filed objections, saying it gave Irish banks an unfair advantage over other ones. Many Irish banks operate in the UK and it is thought consumers might rush to move their money into UK-based Irish banks because their savings guarantee is higher.
On the other hand, other European governments have banded together to take action. Fortis received its bailout from a coalition of Belgium, the Netherlands and Luxembourg, and France, Belgium and Luxembourg together bailed out Dexia. And there's been plenty of other activity, reflected in this chart from McLatchy-Tribune above.
The sense of urgency aroud this issue has grown incredibly strong as new data suggests that a recession could be near in Europe's major economies. French President Nicolas Sarkozyis holding a summit tomorrow here in Paris with the other European members of the Group of Eight (UK, Germany and Italy) to reach some consensus on the reforms that are needed. The idea is that they should present a united Europan front when they meet with the larger Group of Eight shortly. But some other EU countries are not too happy about being left out of this meeting, most notably Spain which now has a larger economy than Italy but is not in the G8.
Already the EU has laid out the regualtory changes it is going to make to improve supervision over European banks that operate internationally, but this won't do anything to bail out banks and other financial companies that may fail in the coming weeks. One of these future changes, for instance, will be a requirement that people who sell loan packages must hold at least 5 percent of the investment.
However this works out, one thing is clear. This is new territory for the EU. Of course, globally this situation is quite new and is on a scale that hasn't been seen since the 1930's. But in Europe in particular, there are new institutions and new relationships that haven't been tested like this before. Will the EU be able to deal with the crisis effectively? Or will the magnitude of the problem be too much for the fledgling international body to handle, and will the solutions have to fall primarily on the national governments?