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Clearing Up the Credit Crisis European-Style

By Luuk van Middelaar

The European approach to dealing with the credit crisis might strike many as less tidy than that of the US. In the end, though, it might be just as effective.

Just weeks before presidential elections, the United States appears to be in the middle of a power vacuum. This became clear after the US House of Representatives' spectacular initial "no" vote against Treasury Secretary Henry Paulson's emergency rescue plan -- despite its impressive backing from the whole of the American political establishment. The measure's supporters included President George Bush, Federal Reserve chief Ben Bernanke, presidential candidates John McCain and Barack Obama and the leaders of the House of Representatives, Nancy Pelosi and John Boehner.

But even their combined political clout failed to convince a majority in Congress to vote for the plan. For once, it was not Republicans versus Democrats but the Washington establishment versus the people. And it was these people who -- through their representatives -- were less than convinced. In the end, crashing share prices did the trick. But, by then, nobody was impressed.

For its part, Europe is in a perpetual power vacuum. There's no boss, and that's how we like it. Sometimes the European Union member states have to come up with a common policy or a joint reaction to some unexpected event, and that is what they do. The results are almost always untidy. Europe, commentators quip, either appears to be doing nothing ("Europe powerless") or suddenly separates into its component parts with each one doing something different ("Europe divided").

It is a common misunderstanding that it is the task of the European Commission to lead Europe out of a crisis. Last week, an NRC Handelsblad journalist reported on the Commission's proud boast that it had broken a paraffin cartel. Surely the Commission had better things to do in these troubled times, she wrote, as if regretting the complete demise of the European spirit.

The Commission may have been genetically programmed to become a European government one day but now, 50 years on, it has become clear that this will never happen. For the citizens of the 27 member states, it simply lacks the authority that national governments inspire.

Another commonly held but equally mistaken belief is that if the Commission does not speak for Europe, nobody else will. This is not true. In a crisis, all governments act. On bad days they act separately, and on good days they act together.

To find out how Europe acts in a crisis, it is best to look at it not as a Brussels policy-making machine but as a club of member states. Soon enough, you'll find out where the political movers and shakers really are.

Crisis Talks

The confusion of last Saturday's European mini-summit illustrates the point. In formal terms, the four European members of the G-8 met in Paris for "G-4" crisis talks. But while politicians in Madrid and other European capitals were foaming at the mouth, what was in effect a reduced European cabinet (France, Britain, Germany and Italy) was laying the groundwork for common decisions.

The guest list said it all. European Commission President José Manuel Barroso, the euro zone finance ministers, Chairman Jean-Claude Juncker and ECB President Jean-Claude Trichet were all invited.

The agenda was revealing, too. European finance ministers spent Monday and Tuesday discussing the mini-summit's proposals. By the end of next week, representatives from all 27 EU countries will pronounce their verdict at a meeting of the European Council, the body that includes leaders from all member states.

It won't all go smoothly, and the margins of the euro stability pact may prove a sticking point. But, by then, the main policy will already be in place. Only in the final phase will the action shift from the European Union to the G-8.

As current head of the EU, French President Nicolas Sarkozy would like to go to a world summit at the end of this year armed with a consensus statement agreed on by all 27 member states.

So, while the US is being governed from Washington, Europe governs itself from 27 national capitals and Brussels, the capital city of the EU. It may be all over the place, but it works.

Luuk van Middelaar is a historian and a columnist for NRC Handelsblad