On crisis, Europe to US: 'I told you so'

"The EU approach mostly has been directed at rescuing the small saver first and worrying about the big financial institutions later," says Peter Ireland, an economics professor at Boston College. "There's a sense that the United States did it the opposite way, where, from the beginning, it was all about the institutions and only after did they think about small savers."

There are drawbacks to Europe's economic model, says Stefan Bielmeier, an analyst at Deutsche Bank. He says a penchant for regulation has kept Europe's economy less nimble and less able to recover than America's.

Olaf Gersemann, author of "Cowboy Capitalism: European Myths, American Reality," agrees.

"In the old industrial age, discipline worked better," Mr. Gersemann says. "In an age that supports flexibility over discipline and professionalism, the American way might be a better way to do business."

So, when European leaders rail against American capitalism, is it merely populism? No, analysts say: The financial crisis has exposed the need for greater government regulation of financial systems, a position Europe has a track record of supporting, says Gerhard Illing, research director at the Institute for Economic Studies in Munich.

At the Group of Eight meeting in Germany last year, for example, Chancellor Angela Merkel pushed for greater regulations for hedge and private equity funds. The US and Britain resisted. "The mood has changed now," says Mr. Illing. "I think we will go more in the direction Europe is seeking."

That includes greater oversight of international banks with locations in more than one European country, which Brussels has already proposed. Also in the offing: an overhaul of European accounting rules and potential limits on bank lending practices.

Public opinion in Europe is supporting more financial overhaul, and the crisis is serving to fuel Europeans' latent distrust of corporations.

Nowhere is that truer than in Germany, which has long clung to what it calls a social market economy – combining some traits of capitalism with strong commitments to labor protection and social welfare values.

Germany is now the primary voice against a Europe-wide bailout fund. Its government, which already had to deal with a massive corporate tax scandal this year, faces pressure at home for not regulating corporations enough.

"There is now a huge corporate distrust in a society that is always swinging between, on the one hand, saying yes to a kind of capitalism and on the other a kind of modern socialism," says Otto Fricke, a member of the Liberal Party in the German parliament.

A financial crisis, Mr. Fricke says, "always gets people swinging to the socialist side."

Previous

1 | 2