Monday, April 27, 2009

Europe's In Trouble

European complacency--I don't think the word is too strong--in the face of the crisis is one of its more perplexing aspects. As this VoxEU column points out, there is good reason for concern about the level of debt that "emerging Europe" owes to Western European banks. Perhaps the reason for the complacency is that the most troubled banks are not in France and Germany but in Austria. But the French and German governments should show a greater sense of urgency, as should the ECB.


James said...

To judge from the attacks from Official Austria on Krugman for pointing this out it would seem the Austrians themselves may be somewhat in denial too.

James said...

Wolfgang Munchau's thoughts in today's FT are also relevant:

"European leaders are by and large an intellectually complacent lot. They have never paid sufficient attention to the spillovers of national policies in a single market under a single currency during a crisis. By pursuing what they mistakenly perceive to be policies in their short-term national interest, they not only damage the long-term prospects of the eurozone, but they ultimately end up damaging themselves. They are all under the illusion that they have a national strategy. But adding it all up, there is no joint strategy."

Unknown said...

Yes, intellectually complacent indeed. And there is a report out of France today that Christine Lagarde explicitly rejects the IMF report as "too pessimistic." Lagarde has been in denial since the beginning of the crisis, and with each new development, her optimistic reading has proved wrong, yet there is no effect on her subsequent prognoses.