Gordon Brown: History will charge Europe's leaders with West's decline
Europe doesn't just have a debt problem. It has a banking and growth problem. And leaders must recognize this as not just a Greek or Irish emergency, but a European crisis that needs cooperative, comprehensive solutions.
When the history of the 21st century is written, people will rightly ask why it was that Europe was found wanting during its most intractable economic crisis.Skip to next paragraph
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They will ask why Europe slept as an undercapitalized banking system floundered, unemployment remained unacceptably high, and the continent’s growth and competitiveness plummeted.
Worse still, if a reconstruction plan does not come soon, Europe’s leaders will be charged with “the decline of the West” and then face accusations for being, in the words of Winston Churchill about the 1930s, “resolved to be irresolute, adamant for drift, solid for fluidity and all-powerful for impotence.”
There is, of course, no shortage of European meetings. Hardly a day goes by without a summit of European leaders discussing the latest crisis facing a member state. But each time they talk as though they are dealing with a calamity confined to the nation in the headlines – the Greek problem, or the Irish problem, sometimes the Portuguese or the Spanish problem – without an agreement on the true nature of the emergency, which is pan-European. By wrongly analyzing Europe’s woes, they end up implementing the wrong remedies too. For Europe’s deficit crisis is a real concern but just one of its concerns.
Europe has in fact three deep-rooted problems, each of which is entwined with the other, and each of which reaches systemically into every corner of the continent. Alongside the deficit problem is also a banking problem — not confined to a handful of banks or countries — and a chronic growth problem.
Beyond debt: Europe has a banking problem
First, banks: I was present in Paris in October 2008 at the first meeting ever held of the euro zone heads of government. The diagnosis of the banks I presented was of problems of liquidity but also of structure. But most in Europe at the time believed they were dealing only with the indirect consequences, the fallout, from an Anglo-Saxon financial crisis, and of course thought that a wayward Britain had allowed itself to be locked into the American financial boom.
They did not then know that half the sub-prime assets had been bought by banks across Europe. No one had yet fully appreciated the depth of the entanglements between European banks and other global financial institutions, or how big the banks’ exposure to falling property markets was. I remember the shocked looks which passed along the table when I argued that European banks were even more vulnerable than American banks because they were far more highly leveraged – and indeed still are.