If you are interested in EU integration and if you’ve been following the Euro-Zone crisis for the last 5 years, then last week would have definitely registered the publication of the following blog post by Peter Spiegel on the FT’s Brussels Blog: “Draghi’s ECB management: the leaked Geithner files”
The post is based on some leaked notes from what appears to be an upcoming memoir of Timothy Geithner, US Secretary of the Treasury between 2009 and 2013. It is one section out of what can be expected to be a rather thick book, but I’ll be particularly keen to read this Eurpean section, if these leaked notes are anything to go by.
Peter Spiegel’s article is a collection of quotes from the book, which appear to highlight two things. First Draghi seems to have a type of presidential leadership where he sets tihngs in motion in a very executive way and does not really consult with his peers on the board, a fact that is not completely new and for which he has apparently been criticised in the past.
The other salient fact that emerges from the discussion regards Geithner’s opinions of EU leaders in the midst of the crisis. “Incompetent” and “vengeful” are the words that come to my mind. “Headless chicken” is not too far off… They appeared to have no idea of the dimension of the problem and were mainly in a mood to pound Greece. No wonder we ended up with contagion… Two figures emerge from the lot with a decent image: Trichet, who is reported to have continuously warned EU leaders of the risks they were taken, and Schauble, who emerges as the true ideological power behind Merkel in the CDU, a titan in the eyes of Geithner.
Revisiting two Old EZ Crisis Management Stories
If the tone of incompetence surprises you, I would suggest you read this article. That link takes you to my first blog at the beginning of the EZ sovereign debt crisis, where I transcribed the article from the original author Matt Persson. The original post seems to have been erased, although you can still find the original link at bloggingportal.eu. It is a transcript from a homonimous article of Le Monde. The transcribed post describes a dinner meeting from the European Council in the fall of 2010 and presents what I can only describe as the most disfunctional family dinner I’ve heard of in a long time. Spoiler, Berlusconi plays the role of the inappropriate uncle everyone is doing their best to ignore.
A more stately description of EZ crisis management is provided by Tony Barber in an article from around the same time which describes the negotiations that led up to the creation of the EFSF at the end of 2010.
What’s the conclusion? Well, if you ask me we need more transparency, to shame our leaders into behaving a little bit better. For all our stately facade, the European Council seems less like the conference of Westphalia or the Vienna Treaty negotiations, and more like the circus we see on the floor of the US Senate and the House of Representative as shown on C-Span.
Is any of this really new? No. Not really. In a sense, the incompetence or cluelessness of EU leaders in private was fairly obvious to the public. With hindsight, the survival of the Euro-Zone seems obvious perhaps, but it was not at all during the peak of the crisis. The things politicians were saying about Greece and Ireland were absurdly aggressive and destructive. Plenty of bad decisions were taken. Ireland’s decided to unilaterally bailout its banking sector, which forced everyone else to do the same. The Deauville agreement gave a hint of fiscal union to France but unambiguously established haircuts to debtors without any lender-of-last-resort to cushion the market, which pushed everything over the edge for the next two years. Markets went crazy and no one was doing anything. Everyone was faltering and wondering really how bad it could get. National leaders were mainly pissed off at the fact that countries had lied to them or taken unilateral decisions that affected anyone. But more importantly, this cluelessness was not abnormal. Opinion was very divided as to what should be done. Sure, some economists had predicted something to this effect could perhaps happen, but it is not as if anyone credible explained it step-by-step and hammered at this point for the last 10 years. Not many people really understood what was going on and fewer even understood what they could do about it. It’s easy to look back and criticise the politicians, but really they were, as they often are, a reflection of ourselves. After all we elected them…
The whole crisis was a learning process, which if you ask me is still ongoing. The answer seems fairly obvious to me and I’ll continue to hammer away at it (here, here, here, here and here), repeating it at nauseum, but this wasn’t always the case. I did think that the EZ might just collapse. I still think that it might happen. It’s a bit like the Crash of 1929. The problem wasn’t the crash itself, it was the aftermath. The problem isn’t the EZ sovereign debt crisis; it is its aftermath, the 10 years of economic contraction, lost generation and fragmentation that follow it. I wonder what the world will look like in 2009? How many right-wing extremist governments will have emerged. What will be the consensus on European Integration when no leadership of the project really exists and when it is blamed for poverty and decreased living standards?
What’s really bad is to think that the solution to the entire crisis, Draghi’s bazooka statement in London was an off the cuff statement in the spur of the moment. If this is how things work, monetary policy in the EZ is not really the most robust. Which is sad and quite scary. What’s to stop it from going the other way next time?