Europe Needs Leadership, Not Politics

With global credit and financial markets as tightly connected as they are, both Canada and Germany lose face when domestic politics figure too strongly in their rhetoric regarding the European bailout measures.

“What we do know is that Mr. Mulcair criticizes our government for not participating with Canadian taxpayers’ money in bailing out European banks,” Finance Minister Jim Flaherty said last week. Meanwhile, Prime Minister Stephen Harper makes a point to “remind Canadians of two things constantly: that Canada is doing better, much better, and our mid-to long-term fundamentals are much sounder than virtually the rest of the developed world.” He is also quick to note that Canadian exposure to the economic problems in Europe is quite low. The implication seems to be that not only are Canadians insulated from eurozone issues, they are also free from any responsibility to help bolster the euro by virtue of Harper’s successful economic policies. 

Germany’s stance on many advisable policy changes and bailout measures also seems to be guided by domestic considerations, such as a fear of hyper-inflation dating back to the 1920s, as Niall Ferguson and Nouriel Roubini pointed out in their op-ed in the Financial Times last week.

On both sides of the Atlantic, the crisis is fodder for politicizing as confusion grows. And, as The New Yorkers’ John Cassidy recently noted in a blog post, there is no shortage of confusion.

But scoring political points at home will not help solve a crisis of this magnitude. As Gideon Rachman has pointed out, the political transformation that would bring social security systems in line with each other sufficiently for a banking union to take place would take much more time than is available to avert financial catastrophe.

Let’s hope that Germany, a great beneficiary of the European experiment, eventually does the right thing. Berlin clearly needs to embrace further monetary easing by the European Central Bank, and should seriously consider measures like debt mutualization  – although one need only look at other major European countries to understand the domestic political perils that this could engender. 

And let’s hope that Canada, a fiscally and financially responsible nation, also shows international leadership by encouraging viable and progressive financial regulatory policies in Europe. Canada, for example, is widely lauded for its exemplary deposit insurance, which Ferguson and Roubini advocate for Europe.

By undertaking consistent and sensible action now, both countries will be positioning themselves strategically should the crisis worsen. If other economies end up requiring bailouts like Greece and Spain, Canada will have been prescient in setting a precedent for involvement in order to avoid getting railroaded by G20 countries going into a panicked crisis mode. In such a situation, Canada would not be able to call any shots if it had been intractable in its stance up to that point. Canada needs to find a way to clearly acknowledge that the collapse of the periphery will matter to everyone but remains the responsibility of the Europeans.

Certainly the Canadian government’s point that EU members do not deserve a bailout because they are not developing countries is wearing thin. When Spanish Prime Minister Mariano Rajoy allegedly texted “España no es Uganda” to his finance minister, Luis de Guindos, the popular response was, “Yes, Uganda is better off.” Divisions between developed and developing countries are irrelevant as the European crisis deepens. Glib comments from politicians should not be used to disguise the profound political will necessary to bridge social and economic divides in the industrial world.

Photo courtesy of Reuters