Europe was relieved this morning at the Senate’s move to revive the US bailout plan. Share prices were up and commentators generally agreed that this is the best way to avert a short-term obliteration of finance as we know it.
If there was hesitation here, it was that this was just the first step. Of course, the House vote looms large now, and no one sees this as a foregone conclusion.
As Gerard Baker, US editor of the Times, put it:
“What really matters now is whether the greatly revised and expanded version of the bill passed by the Senate will win over enough House members who voted No on Monday, without losing some of those who voted Yes.”
But as things slowly get clearer in America, so they get more confused and contradictory in Europe. And we are starting to see signs of dissent and contradiction, which could bode ill for Europe’s chances of unraveling its own financial mess.
First, there was Ireland’s decision to guarantee bank deposits. Other countries, particularly Britain, are crying foul, saying it puts Irish banks at an unfair advantage. Already British savers have been moving money across the Irish Sea.
“Ireland is unusually dependent on its financial sector, which is closely intertwined with the British one,” notes Simon Taylor, a former investment banker and currently director of the master of finance program at Cambridge University. “The UK Treasury is rather annoyed at what has happened.”
Then there is the possibility of a “Paulson plan for Europe,” dismissed by some as fanciful, proposed by others as a possible panacea. French President Nicolas Sarkozy has reportedly floated the idea of a euro300 billion fund, though officially the French are not admitting that this is their idea. The Brits don’t like it; neither do the Germans. Expect interesting exchanges on Saturday at a hastily convened emergency summit of the big four (Britain, France, Germany, and Italy) along with European Commission and European Central Bank types.
A survey of 60 economists in Europe by Reuters found opinion split down the middle as to whether such a scheme would work in multinational, patchwork Europe. “The problem with the EU is the fact that there are not the central institutions outside of the ECB. I doubt there will be anything similar proposed in Europe," said Jeremy Stretch, a strategist at Rabobank.
The Guardian, meanwhile, identified six reasons why a Paulson plan would not work in Britain.
Briefly, these reasons involved timing, the threat of panic, the cost, the public backlash, and reluctance to perform such a U-turn.