Europe Not United Over How To Resolve Crisis

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European governments are scrambling to shore up their banks. The governments promised to work together to solve the financial crisis, but so far, they have acted separately. Philip Coggan, capital markets editor for The Economist, talks with Ari Shapiro about the steps European officials are taking to reassure investors, and whether those steps are working.


It's Morning Edition from NPR News. I'm Steve Inskeep.


And I'm Ari Shapiro sitting in for Renee Montagne. European banks, markets, and governments are reeling from the global financial crisis. Stock markets in Europe suffered record losses yesterday. And today in an effort to calm the panic, EU finance ministers agreed to increase bank deposit insurance across all 27 member states. They also pledged to shore up major banks if needed. Still, EU members have been struggling to come up with a united response to the financial crisis. Philip Coggan writes for The Economist, and he's been following the turmoil. He joins us now from London. Philip, welcome.

PHILIP COGGAN: Good morning.

SHAPIRO: Governments have been taking steps to try to reassure investors, first in the U.S. and now where you are in Europe. Why hasn't this worked so far?

COGGAN: Because they've made such a mess of it. In Europe they promised to act together, and they've acted separately. The Icelandic prime minister said overnight that it's every country for itself, and that's the impression that all the countries are giving. Ireland started the rot by guaranteeing all deposits and all short-term debts of banks, and that raised the stakes for every other country. And they've been coming out with a whole series of statements, sometimes backtracking on what they're saying as they desperately try to shore up confidence in their own banking system. But the risk is, of course, that if Ireland stabilizes its system and attracts money from other countries, that just creates more trouble for the other countries.

SHAPIRO: Well, then why do so many countries oppose a continent-wide bailout like the $700 billion plan that the U.S. passed last week?

COGGAN: Well, the problem is that the richer countries like Germany and Britain would worry that they would end up spending money helping out the banks of some of the poorer countries. Imagine if all the states had separate taxing authorities, and you asked the voters of Kansas to bail out banks in New York. It wouldn't go down very well, as we saw earlier from the bailout plan. So this is the extreme difficulty of knowing that a few countries would put in the bulk of the money to such a fund, and they haven't been responsible for the problems of banks in smaller countries.

SHAPIRO: Well, how much power do the EU financial ministers who are meeting in Luxembourg today have to set continent-wide policy?

COGGAN: Well, they don't have that much, because unlike the U.S. there's no continent-wide treasury. They have the European Central Bank which can set interest rates across Europe, but not for all countries, because some countries aren't members of the euro, like Britain. But there's no European tax raising body which can suddenly decide to raise a fund, and that's the difficulty in coordination of these 27 countries to try and do something together.

SHAPIRO: We've seen these dominoes fall, starting in the U.S. and now moving into Europe. Where else should we be looking for the fallout from this financial crisis?

COGGAN: Well, you now have to start looking at the rest of the world because the falls in commodity prices, for example, will damage countries where they are very dependent on commodity exports. The possibility of recession in both the U.S. and Europe will hit exporters of electronic goods in Asia, for example. So one of the big banks, UBS, is forecasting a global recession next year because of all this, and obviously that's going to cause problems for people in the emerging world, developing countries. And yesterday we saw stock markets in both Brazil and Russia suspended because the share prices had fallen so fast.

SHAPIRO: You know, you have said on this show before that until confidence is restored, markets will continue to be volatile. How does one restore confidence when the current climate is as bad as it is?

COGGAN: I think they're going to have to throw the book at it. And already, Australia has cut interest rates by a full percentage point. There's a possibility that Britain will do so later this week. And I think, perhaps, a lot of countries will have to cut interest rates all at once and accompany that with bailout plans for individual banks. And again, there are reports emerging today that Britain is doing that with some of its leading banks. So they are going to have to produce a whole range of measures all at once in the hope that that breaks the cycle of panic that has currently set in.

SHAPIRO: Philip Coggan writes for The Economist, and he joined us from London. Thank you.

COGGAN: Thank you.

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