The drive began with an emergency gathering of Germany, France, Italy and Great Britain in Paris on the first weekend of October, went on to an emergency summit of the 15 nations of Europe's single-currency zone plus Britain (which is not part of the euro area) on October 12, and will continue as the European Union countries will gather for a general extraordinary summit in Brussels on October 14-15, while the Group of Eight will meet in Japan on October 24-25.
There was also a G7 meeting of finance ministers in Washington (Russia's Alexei Kudrin was present although Russia is not part of G7), as well as an annual meeting of the International Monetary Fund and World Bank shareholders.
Those accountants endowed with ministerial portfolios are having a hard time now, having failed to realize that banks no longer followed financial laws, but used some tacit rules of their own to guide their operation, that a global crisis was imminent and that governments had to interfere.
President George W. Bush must be having the hardest time of all now that he has been nearly thrown off the global stage. Italian Prime Minister Silvio Berlusconi described how it happened.
As we know, Bush proposed an extraordinary G8 summit in Washington on October 14. Berlusconi said the date and place were basically okay. But, according to him, Nicholas Sarkozy asked him to wait and see what will happen and what still may need to be done.
Diplomats and politicians usually speak in codes, and this code as used by the French president meant "this is something we do not want or need." Instead of Washington, the G8 will now head for Japan, which is now driving itself into the ground preparing for the summit. The top G8 officials will reportedly be meeting somewhere close to Tokyo's Narita Airport: convenient to fly in, quickly discuss things and fly home.
It was unthinkable a few weeks ago that the United States could be kept almost out of the quest for solutions to the global financial crisis. But this crisis is different. It originated in the United States which allowed the virus to escape thereby contaminating other parts of the world.
Europe didn't seem to want to go to the crisis epicenter. The Times, perhaps, offered the best explanation of the situation: "Aghast at the dithering incompetence of the U.S. in handling this crisis, European politicians have realized that Henry Paulson, the supposedly brilliant U.S. Treasury Secretary, was an emperor with no clothes. Instead of waiting for U.S. leadership, they had to take responsibility for Europe's problems."
The 15 Euro-zone leaders roughly outlined their responsibility at their emergency Paris summit. That summit was the first one of its kind since the introduction of the euro in the early 1990s, which is indirect evidence that matters are really getting out of control.
The solutions they worked out are like a tool kit with a do-it-yourself manual. In fact, this is quite reasonable because although most countries have the same symptoms of the crisis, they vary in intensity from catastrophic in Britain (the author of the Anglo-American model of bank liberalism) to moderate in Spain. Each country may pick the tools it needs from the kit and use them to respond to their particular situation.
All they have to do is read the manual which contains 13 instructions. The key steps are fairly simple: to temporarily guarantee bank refinancing and interbank loans; to guarantee "for an interim period and on appropriate commercial terms" new debts caused by bank lending during the next five years; and to rescue important failing banks through emergency recapitalization. The scheme will be applied through December 31, 2009.
By following these guidelines and using uniform tools, Europe seems able to rescue its banking sector, to ease tightened financial markets and get credit flowing again. Although they aren't yet anywhere near establishing a pan-European financial fund to rescue banks as proposed by Nicolas Sarkozy, they've come a long way from leaving everyone to try and keep afloat as best they can, as German Chancellor Angela Merkel suggested.
There was no sum given on how much the EU measures would cost; each country will decide how much it will spend, and individual governments will announce this at the Brussels meeting on October 14-15.
But the amounts will obviously be enormous, and probably close to, or in excess of, Henry Paulson's $700 billion bailout. Germany alone is said to be willing to allocate �400 billion to save its banks, and even Portugal will provide �20 billion to support its banks.
Whatever the specific amounts, is it clear now that many taxpayers will eventually find themselves the co-owners of some of Europe's private banks. Even at 10 Downing Street, they no longer hiss at the word "nationalization" through gritted teeth.
Even officials in London, who have preached bank liberalization, freedom and self-regulation for the past few decades, realize that large-scale nationalization will become unavoidable if their plans to inject cash and buy failed assets from banks work too slowly or don't work at all.
Whatever the rhetoric used, and whatever the government share is - 50% or 20% of capital - the banks will be nationalized. It is important that the federal budget will eventually have to pay for the "antidote for avarice."
The emergency measures designed by Euro-zone leaders are now subject to parliament approval in each country. Such radical measures will inevitably require multiple amendments to existing national and European budget and finance legislation. Laws will have to be changed because it will certainly be a lesser evil. Without government cash injections, banks will not be lending to customers or to each other and the economy will be drained of liquidity and eventually collapse.
At this point, one could go on arguing for hours about morals and values, and where greed and avarice can lead, and what happens when banking and institutional regulations become too loose and are eventually replaced by concepts irrelevant to economic and financial convention. It is as simple as this: banks have long since stopped abiding by laws of economy and finance, and devised rules of their own, functioning in a way similar to organized crime, where violent clashes and upheaval are common.
It looks like Europe is filing for "divorce" from the Anglo-American banking system.
As for the United States, it is unlikely to ever restore its ruined financial reputation. It is an important part of Europe's emergency plan to restore confidence in banks and stock markets.
Doesn't it sound paradoxical to try and restore public confidence in capitalism through government intervention? Theorists of classic Marxism-Leninism would be happy to hear this. They never succeeded in finding such vivid evidence of "unbridled markets" and "rotting capitalism."
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
