• English Site
• > Business
• > Economic and Financial Crisis

The World from Berlin

Time for EU Politicians to Act on Credit Crisis

The European Union is increasingly worried about the growing credit crisis. The EU Commission on Wednesday said it is considering new rules to improve oversight. German commentators say it's about time politicians did something.

For months, Europe seemed content to gaze across the Atlantic and watch as wave after credit-crisis wave crashed over the United States. But with the failure of a handful of banks in Europe in the last week, and with the Congress in Washington D.C. on Monday rejecting the massive US bailout plan, the EU is beginning to worry. Indeed, despite concerns that the European Union might prove to be too unwieldy to adequately respond to the growing crisis, the European Commission on Wednesday quickly approved the British government's 50 billion pound (€63 billion) bailout of the ailing mortgage bank Bradford & Bingley.

"This case once again demonstrates that, when the member state in question fully cooperates, the Commission can act quickly," said EU Competition Commissioner Neelie Kroes.

Kroes said on Wednesday that the Commission was doing what it could to move quickly on approving the state aid a number of other European governments have provided to struggling banks, but emphasized that EU rules must be respected. "The state aid rules are part of the solution and they are not part of the problem," she said, according to Reuters.

Brussels, though, may be looking to take wider measures to restore confidence in European banking. European Commission President Jose Manuel Barroso said on Wednesday that the EU needs to improve financial supervision and establish consistency in national plans to guarantee bank deposits. He also said the Commission was working closely with French President Nicolas Sarkozy, the current holder of the rotating EU presidency, to come up with a plan.

"We need a further strengthening of the supervision structures at European level," he told reporters in Brussels. He declined to give specifics, saying he didn't want to raise false hopes, but he did reject a French proposal to suspend EU limits on the aid member states are allowed to provide banks.

German commentators on Wednesday took a closer look at the widening crisis.

The center-left Süddeutsche Zeitung writes:

"The entire world economic system is based on the faith that all the trillions of dollars the economy is worth actually exist…. Because trust is the foundation for everything, it is suicidal that the finance branch has gambled away so much of it. What are banks there for? They exist primarily to provide companies and consumers with money so they can produce and consume. But many banks have bid adieu to this mission."

"Now, politicians have more authority than those in finance…. The failure of the US bailout package, however, demonstrates that politicians have credibility problems of their own. Even US citizens -- not generally suspected of having socialist tendencies -- are not big fans of giving Wall Street handouts. Investors and bankers in the US and Europe have single-mindedly pursued the highest returns possible in recent years. Risk has been ignored as have the interests of workers. The gulf between rich and poor has grown. People don't want to see the finance system propped up so it can function as it has until now."

In addition to the bailout, "politicians should take it a step further. In recent years, they have allowed investors and banks to redesign the economy. Free from all regulation, hedge funds were allowed to swallow up companies from their headquarters on Caribbean islands. Those at the management level dictated a goal of 25 percent returns and all their workers had little choice but to obey. Now it is time for politicians to jump in and demand a say."

The Financial Times Deutschland writes:

"(The US rejection of the bailout plan) should be an urgent warning to the governments in Europe. Their elbow room for effective crisis management could be dramatically curtailed if they do not succeed in convincing the broader public that they are doing the right thing."

"German politicians who have so far stuck to popular slogans during the financial crisis are taking a very perilous path. The disaster threatening the financial system will not be averted should the state continue to base its actions on opinion polls."

"In Germany and Europe the situation is not yet as dramatic (as in the United States). The signals from the financial system are, however, just as alarming and the political tone is anything but reassuring…. Here too, those who want to address the systemic causes of the crisis will have to make a lot of taxpayer money available."

"Instead of making the effort to explain this, politicians prefer to sing from the same choir sheet. They complain repeatedly about greed, managers and turbo-capitalism, and make sure to add a good dose of malice and dislike of America. The lucky ones can win elections this way. Those who are not so lucky will soon have to implement a huge state rescue package -- and then face a public that is completely uncomprehending and is fuming with rage."

In a guest commentary for the German business daily Handelsblatt, conservative politician Lothar Späth of the Christian Democrats writes:

"It is absolutely imperative that the government not wait for a run on the banks before acting. The last modicum of trust the government enjoys from its people must now be used in order to restore a sufficient amount of security in the financial markets."

"It is imperative that we win over the people's trust in the principle functionality of the system. And despite all skepticism and statements about competition, the state still needs to prove itself as the final guarantor of the system's stability and justness. Economically liberal Britain has adopted this view and has already nationalized several banks. In Germany, interventions of this scale as a result of past mistakes have until now been deemed unnecessary. But with the bailout of Hypo Real Estate, even the Germans have stopped following strict market economy teachings."

-- Charles Hawley; 2:30 p.m. CET