Friday Smackdown–Timmy! Edition.
Yesterday I expressed my wish that German Finance Minister Schaeuble back off the control freak (“ban the OTC market”) stuff, and get back to bashing our Timmy! Well, he evidently reads SWP–and has company:
It was an unprecedented visit designed to spur the euro zone into action. But Treasury Secretary Timothy Geithner’s high-profile trip to Europe left some European officials more dumbstruck than starstruck.
. . . .
But however good Geithner’s intentions, the indications were that the meeting did not go as smoothly as he might have hoped.
Held in a concert hall, the gathering lasted for about 30 minutes. The euro zone ministers arrived together by bus. Geithner was sped to the doors in a private car.
There was no word on whether voices were raised or what the temperature of the exchanges was, but Austria’s finance minister, for one, was less than warm to Geithner’s message.
“I found it peculiar that even though the Americans have significantly worse fundamental data than the euro zone that they tell us what we should do and when we make a suggestion … that they say no straight away,” Maria Fekter told reporters afterwards, recalling a difference of opinion between Geithner and German Finance Minister Wolfgang Schaeuble on how to reinvigorate the euro zone and tax financial deals.
Although some dropped hints of disagreement behind the meeting’s closed doors, few were prepared to disclose Geithner’s full prescription to heal the euro zone crisis.
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But his language was perhaps too blunt for European ministers, fatigued by the crisis and the countless disagreements it has prompted amongst them.
“We can always discuss with our American colleagues. I’d like to hear how the United States will reduce its deficits … and its debts,” Belgian Finance Minister Didier Reynders said somewhat tartly.
Jean-Claude Juncker, the chairman of the Eurogroup, was even more to the point.
“I don’t think it would be wise for me to report from an informal meeting that we have with the treasury secretary. We are not discussing the expansion or increase of the EFSF with a non-member of the euro area,” he said.
. . . .
For many in the meeting, Austria’s Fekter most particularly, his message fell flat.
“I had expected that when he tells us how he sees the world that he would listen to what we have to say,” she said.
Not that this wasn’t perfectly predictable. I’ve written several times before about how I cannot recall an American cabinet officer, let alone a Secretary of the Treasury, being treated with the disdain that Geithner regularly encounters abroad. He is truly DC’s Rodney Dangerfield. He has yet to learn that gratuitous and hypocritical advice is not the way to win friends and influence people. The hectoring and lecturing is the last thing people facing an existential crisis need to hear: and it’s not just Timmy!, but Obama too, and the president is rapidly entering Dangerfield territory as a result of his supercilious lecturing to everybody about everything, while pretending that he’s responsible for nothing that goes wrong.
Europe’s leaders are Lilliputians. But sadly, at times like this they appear to tower over ours.
Take it away, Rodney!
“I found it peculiar that even though the Americans have significantly worse fundamental data than the euro zone that they tell us what we should do and when we make a suggestion … that they say no straight away,” …..
I am dumbstruck at the above comment. Bad as it might be, the US economy is probably way above that of Europe. Disbanding the euro is probably the wisest choice instead of prolonging the agony.
Comment by Surya — September 16, 2011 @ 4:35 pm
I agree–amputate, rather than die of gangrene.
I’m not. It’s an accurate assessment. Aggregate EU debt levels are slightly lower than US, and their aggregate budget deficit is a great deal lower (6% vs. 12% of GDP, off the top of my head).
Comment by Sublime Oblivion — September 17, 2011 @ 3:05 am
@Surya & S/O–I think you are both right. The US has larger aggregate debt levels (esp. if you factor in the states)–score one for S/O. This is a serious concern, and unless the US acts quickly we will be facing our own crisis soon. But Europe is vulnerable to crisis at lower levels of debt because of the mismatch between its monetary system (centralized/unified) and its fiscal system (not). The Eurozone is not even close to being an optimal currency area, the US is. The EZ’s attempt to maintain a single currency in a suboptimal currency area with no fiscal integration means that it can sustain less public indebtedness before it is vulnerable to crisis–score one for Surya. Also, European banks are much more exposed and vulnerable right now, and banking is even more central to European finance (esp. in France, among the big countries) than American.
I therefore think that disbanding the Euro as it is is likely inevitable. One interesting suggestion is that the N. Euros form a separate currency zone and the S. Euros stay on the Euro. (Where France lands is the big question in such a scheme.) That would finesse (though not eliminate) many of the transitional problems.
The simplistic solution being suggested for Europe is that it created an integrated fiscal system. By tomorrow. If not sooner. This will not work, not on that time line, or any time line. Given the disparity between countries, I cannot see a mutually acceptable framework that will accommodate both the Germans et al and the Greeks, Portuguese, et al.
Fiscal union also has its own problems. The US has been able to run its indebtedness to where it is precisely because of the fact that it is a fiscal and monetary union. Absent some constraint on what the unified state can accomplish, it has a tendency to overspend and overborrow. So fiscal union is not a panacea; absent constraints on the discretion of the state, it just affects the level of debt that it can sustain before crisis impends, not the likelihood of eventual crisis.
What is essential is some binding constitutional constraints on the state that prevent it from succumbing to the political economy of spending and debt. The US doesn’t have it anymore. Europe is unlikely to have it even if they move towards fiscal union. Thus, these problems are not going away any time soon.