With the flood of economic news out of Washington this week you may not have been keeping up with the gloomy financial tidings out of Europe, where massive indebtedness in the East, funded by the West, is being referred to by some as Europe's subprime crisis. Time for an urgent update.
On Friday, as Bloomberg reported, the European Bank for Reconstruction and Development, the World Bank and the European Investment bank
announced they will provide up to 24.5 billion euros to help central and eastern European banks and businesses cope with the financial crisis. It's a start--but the problem is a very large one.
How large? Writing on vox.eu on Wendesay, Daniel Gros of the Centre for European policy studies had
this to say:
The EU should set up a massive European Financial Stability Fund (EFSF). Given the scale of the problem facing European banks, the fund would probably have to be of substantial scale, involving about 5% of EU GDP or around €500-700 billion.
But if rescues and bailouts are controversial in the U.S., they're an even tougher sale in the loose federation of countries and cultures that is Euroland and its periphery. Another report on Bloomberg Friday has a hedge fund investor predicting that the ten-year-old single currency will
collapse over the strains. Not everyone is making such dire predictions. But remarks in the same article by former Bundesbank chief Karl-Otto Poehl against a rescue are not reassuring.
Nouriel Roubini commented on the situation in Forbes on Thursday, detailing the
mounting tensions over things like intra-Europe protectionism in the automotive sector.
And on Tuesday, former IMF chief economist Simon Johnson reiterated a
proposal he made in October. He wants a European Stability Fund that is able to offer a 2 trillion euro credit line. Johnson also argued for action sooner rather than later.
Strong, unified action is not exactly Euroland's forte. But maybe the situation is dire enough to concentrate some minds.-
Kenneth Klee
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