The stress to the Euro zone's culture and institutional ability to withstand economic crisis continues.
Resolution, one way or another, is coming quickly, and has major implications for Gold, Oil, and the Dollar.
Narrow-minded leadership hurts Europe
By Wolfgang Münchau
Published: February 15 2009 19:27 | Last updated: February 15 2009 19:27
“It is justifiable if a factory of Renault is built in India so that Renault cars may be sold to the Indians. But it is not justifiable if a factory ... is built in the Czech Republic and its cars are sold in France” – Nicolas Sarkozy, president of France.
This is a troubling statement indeed. But instead of launching a tirade against Mr Sarkozy, I would like to make an observation that is perhaps not immediately evident: his statement is entirely consistent with the way the European Union has reacted to the financial crisis.
To see the link between crisis management and the rise in protectionism, look at the initial policy response to last September’s financial shockwaves. European leaders have woefully underestimated the crisis and possibly still do. The European economy is now heading towards a depression, with German gross domestic product falling at an annualised rate of almost 9 per cent. The early misjudgment of the crisis resulted in stimulus packages with two defects. They were initially too small but, more importantly, they were not co-ordinated. One important aspect of the economic meltdown is the presence of strong cross-country spillovers, both globally and inside the EU. The policy response failed to take account of these spillovers.