You might recall that, back in October of 2008, President George W. Bush, Treasury Secretary Henry Paulson, FED Chairman Ben Bernanke, the Leaders of both the House and Senate and, I believe, Timothy Geithner, (then) President of the Federal Reserve Bank of New York gathered to advise the Country that it was staring down into an Abyss. Geithner was probably included, because the FED-N.Y. would administer “TARP”–the Big Bank Money Grab.
So, here we are, almost five years later, and what has changed–Virtually Nothing! The “TBTF’s” (Too Big To Fails) can still borrow at virtually no-cost from the FED, Congress is fighting any real implementation of the Dodd-Frank Legislation, the Too Bigs (along with their overseas accomplices) still control the bulk of the Financial Market Share and, so far, they don’t acknowledge their Crimes, and no personal fines or jail terms are levied on the perpetrators…time and time again. And, are they sufficiently capitalized?
The situation in Europe, especially in the EuroZone, is much worse. The financial problems, which the U.S. encountered during The Great Recession (late 2007 to early 2009) were just as troublesome in Europe, due to the similarities in the two Banking Systems. The linked Editorial, from the NY Times, more specifically describes the situation in Europe, http://www.nytimes.com/2013/07/07/opinion/sunday/europes-delayed-banking-union.html?ref=opinion&pagewanted=print.
There are now 28 Member Nations in the EU (European Union); however, only 17 belong to the EuroZone, and using the common currency. The various countries have different cultures, political philosophies, banking systems and even economic conditions. It has remained more of a Country Club all along, rather than any sort of a Union. Also, many of the average citizens, in the EU, don’t even speak the same language.
Now, although many banks in the U.S. increased their Equity Capital after the Recession, most banks in Europe didn’t raise anywhere near enough. Rather, the Union and the Zone just assumed that the individual countries would bail-out their respective TBTF’s. But, given the state of many countries in the EuroZone, they’re not going to be able to bail anyone out.
Keep in mind that the Debt Crisis in Greece was first made public in February of 2010. And since than, it has carried over to Ireland, Italy, Spain, Portugal and Cyprus. Also, with most of the other countries in the Zone in recession, who might be next? So, it comes down to less and less countries bailing out more and more Member Nations.
To me, one of the main inconsistencies, which the EuroZone retains is the fact that Fiscal Policy (Budget and Taxation) is controlled by the 17 Member Nations; however, Monetary Policy (Interest Rates and Money Supply) is managed by the ECB (European Central Bank). So, where our FED and Treasury can work together to manage the two Policies, it is a real free-for-all in the Zone.
Given the Austerity Programs that most countries in the EuroZone enacted, the stimulus (buying assets from banks), is of limited help. The Banks are not lending money due to the weak National GDPs, and that impacts the overall EU Economy, reduces tax collections and increases the demands on the Safety Net. As anyone who has visited DisneyWorld knows, Big Thunder is the Run-Away Locomotive–just like the EuroZone.