Nationalizing banks: Europe shows the way

Europe has met its greatest economic challenge decisively, said France’s Le Monde in an editorial. “History will show that it was in Europe—and more precisely in Paris—that the first serious global response was made to the worldwide financial crisis.” European finance ministers this week agreed to work together to inject billions of euros into struggling banks in hopes of restoring confidence in the financial system. British Prime Minister Gordon Brown led the way, with his bold move last week to partly nationalize British banks. German Chancellor Angela Merkel followed suit, bravely casting aside her “well-founded” fears that intervening in the free market would cost her the support of her center-right party in next year’s elections. But it was French President Nicolas Sarkozy who played the mediator, bringing Europeans together in his capacity as current head of the European Union.

“Nobody is happy” to see banks nationalized, said Heike Göbel in Germany’s Frankfurter Allgemeine Zeitung. Europeans, particularly Germans, know how closely democracy and free markets are related. “No democratic system can survive except in a free market.” Europeans are taking quite a risk, not least because they are rescuing all the banks—not just the worthy ones with solid management and strong assets, but also the flimsy ones that made bad loans they can never hope to collect. But the risk is necessary. Only a muscular intervention can avert global financial disaster.

We’re not there yet, said Will Hutton in Britain’s Guardian. This injection of billions of pounds of taxpayer money into our banks may be “the gravest event in the modern financial history of the U.K.,” but it is still only “the end of the beginning” of our response to this crisis. The entire business model of banking “has to be reconceived,” and it is the government that is now in charge. The government must decide how to regulate the markets, particularly the market in credit-default swaps and other complex financial products, and how to stimulate demand “for the offers of loans it wants the banks to make.” Gordon Brown’s government may say that it is “not in the business of running banks.” But guess what? It is now.

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Let’s hope it does it well, said Britain’s Times. The British and other European governments will have to take great care to ensure that “the banks’ behavior is not perverted or politicized in years to come.” But we can take heart in the knowledge that this crisis, grave though it is, is just another moment in the eternal cycle of boom and bust. Capitalism may have “faltered,” but it has not failed. The “many well-run businesses remaining” will “return us to prosperity.” We just have to hang on until then.