Europe: Crisis pits East against West
At an E.U. summit last weekend, German Chancellor Angela Merkel nixed a bailout for Eastern European countries, saying Western Europe would help on a case-by-case basis.
Eastern Europe is growing “desperate,” said Razvan Ciubotaru in Romania’s Cotidianul. Staggered by currency devaluations and threatened by bank failures, several nations there, notably Hungary and Latvia, have already received bailouts from the International Monetary Fund. But the crisis has hardly abated. Hungarian Prime Minister Ferenc Gyurcsány recently appealed to the rich E.U. countries for $230 billion in additional aid to the East, saying that “a new Iron Curtain” would “divide Europe into two parts” if the Eastern countries were allowed to sink. But at an E.U. summit last weekend, German Chancellor Angela Merkel nixed the bailout idea, saying rich countries would help poorer neighbors only on a case-by-case basis.
Merkel’s reluctance is understandable, if misguided, said Wolfgang Münchau in the Financial Times. The crisis in Eastern Europe is a consequence of bad policies. These governments encouraged their people to get mortgages in foreign currencies, including the Swiss franc when interest rates in Switzerland were especially favorable. When the franc rose, so did their debt. “If confronted with a crisis such as this, you do not want to be a small open economy, on the fringes of the euro zone, with an irrelevant currency and lots of Swiss franc mortgages.” Worse, the governments failed to curb their deficits and take the fiscal measures necessary to join the European Union and benefit from the relative strength of its currency, the euro. Now they are suffering for their mistakes. The only thing they did right, if you can call it that, was to ensure that their banks are owned by Western Europeans. As a result, defaults in the East will bring down banks in the West. So we truly are all in this together.
Thank goodness for that, said Pauls Raudseps in Latvia’s Diena. Western Europe can’t simply write us Easterners off since it owns $1.5 trillion of our debt. Austrian banks made loans to Eastern European countries equaling a shocking 75 percent of Austrian GDP. If banks were to write off just 10 percent of those loans, “the Austrian financial sector would collapse.” In Sweden, the comparable figure is 30 percent of GDP and in Greece nearly 20 percent. Of course, interdependence works both ways. Latvia depends on German investment. “We are so weak right now that if Germany coughs, we will catch penicillin-resistant tuberculosis.” While we all know that we need each other, unfortunately “it remains unclear how we Europeans will get out of this mess.”
Not by reverting to protectionism, said Klaus-Dieter Frankenberger in Germany’s Frankfurter Allgemeine Zeitung. It would be “fatal” to follow the lead of French President Nicolas Sarkozy, who with his “imperfect command of the principles of a free market” has threatened to uproot French auto plants from the Czech Republic and replant them in France. Such protectionist measures may temporarily boost national economies, but they will not solve the problems of Europe—or any country—in the long run. The cost of disunity would be “collapse and political crisis,” which would be borne by everyone. “And the noble idea of European community would be damaged even further.”