The crisis of confidence in Europe’s political machinery
relates to the magnitude of its financial and economic challenges. Winners and
losers are easier to manage in boom economies, and small losses easier to
forgive than great ones.
Larry Summers offers a neat description of the scale of the
euro zone’s credit problem—the amount of money that must be raised and, somehow,
someday repaid.
“The second problem is the
magnitude of the transfers that could be involved. During the U.S.
savings-and-loan crisis, the Southwest received a transfer from the rest of the
country equal to at least 20 percent of the region’s GDP. Is there a real
willingness to commit to potential transfers of this scale in Europe? Maybe all
of this can be resolved, but surely it will not happen quickly.”
So, the problem is big, but not unprecedented.
Why is it taking Europe’s leaders longer to resolve this
problem? Surely, they are just as smart
with money as Americans.
Northern Europe today is as financially strong as Washington
was during the S & L crisis. Washington, however, not only had the
regulatory authority to protect its long-term interests, its president and
congress owed much of their political power—and future political success—to
voters in the Southwest. Washington had a common motive as well as the means.
In a crisis, Washington politicians can’t as easily stand
back and worry about “moral hazard” and scold those looking for help. (The
virtues of “creative destruction” are undeniable and must be mastered if you
want to earn a Harvard MBA. But, they are best not raised in Detroit.)
Spaniards don’t vote in German elections. However, Nevadans
and New Mexicans help elect US presidents and can decide who has the next majority
in the US Senate.
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