Europe’s banking crisis: Is the rescue too late?

Angela Merkel and Nicolas Sarkozy have apparently reached an agreement on recapitalizing European banks, but they will not provide specifics until later this month.

“Forget the Black Death,” said Bill Emmott in the London Times. Europe is facing its darkest days now. According to Mervyn King, governor of the Bank of England, the current financial crisis is worse than the Great Depression. For months, European leaders have been avoiding massive action, but now even German Chancellor Angela Merkel finally seems to understand the severity of the situation. She voluntarily spent last weekend in the company of French President Nicolas Sarkozy, a man she detests. The two have been at odds over the euro crisis: Merkel wants to restructure Greece’s debt, and Sarkozy doesn’t. Sarkozy wants the European Central Bank—i.e., German taxpayers—to bail out French and other European banks, but Merkel doesn’t. After their meeting, the two declared that they had reached an agreement on recapitalizing the banks. But they declined to provide specifics, saying the measures would be announced later this month.

How long can we keep kicking this can down the road? asked Laurent Cohen-Tanugi in the Paris Les Echos. European leaders seem perfectly happy “to deny reality and put off to the last possible moment actions that numerous experts recommend and that the markets expect.” We’ve known for months that the banks that are exposed to Greek debt need shoring up, but “only now, in the last couple of days, when we are once more on the edge of the abyss,” do the politicians act. And even then they don’t tell us what they’ve agreed to do! Their procrastination carries a real cost to all of us, in a prolonged recession—and to them, in a loss of credibility.

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