EU’s defects must be addressed for euro survive (the globe and mail)

StockPublished Monday 13 December 2010 taken 2 H 38 ESTLast updated 13 December 2010 3 H 01 EST0 comments

Over this period of last year, the Polish Government is considering an expensive education program to explain the joys of the euro for more than two thirds of the Poles who liked the idea. Politicians thought that they might be willing to register as early as 2012. Today, after more tumultuous year in the brief history of the common currency, Polish policymakers seem no longer hastily to renounce their expensive zloty.

Or whether they are. When the irreducible euro it resurfaced during the Greek crisis last spring with their dire predictions of the possible disappearance of the currency, the most dominant analysts rejected the idea of immediately. But now, as the great European debt crisis lurches in its second year of ardent supporters of the single currency are less certain about its future.

A sign which is the euro area in serious difficulty: repeated assurances of Eurocrats and prominent politicians are ready to make the necessary stabilize currency, to restore the financial health of the region and regain the trust of investors international liaison. As if by chance, they sound as the owner of the team that fully expresses confidence in embattled coach right until the moment the axe falls.

German Chancellor Angela Merkel and French President Nicolas Sarkozy promised once more their unwavering support for the euro on Friday. And EU President Herman Van Rompuy stated that any other option would result in "depression and even chaos" in all the Member States.

"If the euro fails, Europe fails," Ms Merkel declaimed after a joint meeting with French and German firms ahead of the euro area, Summit later this week. She spoke of the need to address the fiscal woes of the region and the gap between strong and weak competitiveness.

Structural defects in the region require indeed attention that immediate fire have been developed. But there is an issue of pressing more MS Merkel and boosters euro colleagues appear to be carefully avoided. This would be the continued fragility of ravaged by debt banks region, whose health is at the heart of the current crisis.

The crucial role in the unfolding played by the chronic weakness of the banking system in the second half of 2009 and 2010 early mess has been largely underestimated, explains Nicolas Véron, a researcher Bruegel the elder, the respected Brussels think tank. "If Europe had conducted a serious process marshalling yards, repair and restructuring the banking sector, the shock of the post-Lehman, we probably would be where we are today,", insists m. Véron, an expert on banking and financial regulation.

In other words, likely European could have prevented Greek and Irish - and kept disasters holders flee to exit - if they had not tried to plug the critical problems of their financial institutions. Underlying the subsidies were legitimate fears that banks of the euro area were simply too poorly capitalized to withstand shocks that Greek or Irish default would have unleashed.

However, it is interesting to note that Irish zombie banks were among those who supposedly spent stress tests Bank European early July. While the United States used stress test conclusions to strengthen balance sheets of troubled banks "financial nationalism" rendered unnecessary European tests, says m. Véron.

Famous slogan with donning a European campaign spin then-U.s. presidential candidate Bill Clinton economy: "It is that banks, stupid."

Things, Europe now has little choice but to make dramatic structural changes address banking woes and to obtain public finances in order to embrace his cherished farewell of the common currency.

"More and more, I see the conclusion as one of the two extremes", explains Mr. shockingly due Véron admit. The euro is frayed or EU moves towards a sort of fiscal federalism or integration.

But it will be difficult to win approval by national Governments to beleaguered major institutional reforms, including a pan-European body to cleanse banks fight.

The latter task can be left to individual Governments, partly because of the broad cross-border activity of all but the smallest banks, and that most countries continue to insist on their own institutions. "If everyone else is left to themselves, there are very important not to do anything, incentives", explains Mr. Véron.

It recognizes that there is no precedent for European banks to the supranational level. But there is no precedent for what is happening in Europe. The fact that Europe now faces so radical a choice is a consequence of the crisis would not have been corrected soon enough. »