29 September 2011

Ian Wishart: A long way behind the curve

Olli Rehn, the European commisioner for economic and monetary affairs, and José Manuel Barroso, his boss at the European Commission, together with Herman Van Rompuy, the man supposedly co-ordinating the Member States' response to the crisis, are increasingly resembling the three wise monkeys of Japanese folklore. For too long they have been looking the other way. They admit there is a problem, they talk around the subject, but they ignore what needs to be done.

While this principally may be a crisis of debt, markets, and national governments, it has also highlighted a problem of leadership in the European Union's institutions. A verdict on the role of Jean-Claude Trichet, the president of the European Central Bank, should perhaps wait until his term of office expires at the end of next month. But an expression of which he is fond – that policymakers should be “ahead of the curve” – is a fitting measure to apply to our leaders. It is no exaggeration to say that Barroso, Rehn and Van Rompuy have been behind it. And for some time.

The list of examples is embarrassingly long. But just take the re-capitalisation of eurozone banks. How happy they were when this year's stress tests indicated that only nine banks needed major bolstering. But the tests did not factor in, to any great extent, the risk of a sovereign default. I see no evil, said Rehn, on 29 August, when he rebutted the suggestion made by Christine Lagarde, the IMF's managing director, that there needed to be major bank re-capitalisation. Many economic analysts agree with Lagarde. Even Rehn's colleague, Joaquín Almunia, the European commissioner for competition, appeared to contradict him last week. While the plan that emerged from the IMF's conference is still unclear, a bank re-capitalisation looks likely to be a major pillar. Ahead of the curve? Hardly.

Barroso appears to prefer rhetoric to grasping the nettle and convincing national leaders to take drastic measures now to solve the financial crisis. Talk of eurobonds and financial transaction taxes are all well and good, but they are not tackling today's challenges.

And then there is Van Rompuy, the man put forward by Merkel and France's President Nicolas Sarkozy to chair a formalised group of leaders of countries that use the euro. Like Barroso, he likes to talk of European integration as the main way out of the crisis. Earlier in the year his ‘euro-plus pact' was watered down so much it barely resembled his original proposals for stronger economic governance. He is working on a set of proposals on fiscal union, to be unveiled at the European Council on 17-18 October. But in the current crisis it appears to be mere driftwood in the financial markets' raging torrent.

If the three wise monkeys are to help prevent a Japanese-style lost decade, they need to uncover their eyes and ears. And their words need to show that they understand the gravity of the situation.

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