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Saving Europe

Saving Europe: Anatomy of a Dream

Copyright Date: 2012
Pages: 543
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  • Book Info
    Saving Europe
    Book Description:

    Is the European crisis over? By no means, according to economist and journalist Carlo Bastasin. In fact, the problems that developed between 2008 and 2011-described in the first edition of Saving Europe-have grown more insidious. The crisis originated when national governments failed to act openly and responsibly, putting in jeopardy not only their own countries but also the well-being of future generations and foreign taxpayers. This failure continued even after the crisis became evident; leaders did not explain clearly to their citizens why the financial crisis had occurred and what was being done about it. From a crisis of politics, it has turned into an outright crisis of European democracy, and a warning for the future of globalization.

    Carlo Bastasin paints a unique, gripping picture of the events, people, and ideas behind the scenes of the European crisis. From the historic roots to the most recent develop-ments, the author unveils an engrossing chronicle of high drama and individual personalities on the world stage, including presidents, prime ministers, and central bankers. Saving Europe is the definitive book about the financial crisis-and the history as well as the future of Europe's economic and political union.

    Praise for the first edition ofSaving EuropeBastasin does an admirable job in analysing the euro-zone's economic challenges and is a sure-footed guide through the seemingly endless European Union summit meetings that were supposed to resolve them. He also has an eye for the human detail that makes his sad account of institutional muddle surprisingly compelling. -Financial Times

    Bastasin's book is worth reading for its detailed political narrative of the eurozone crisis to date, focusing on the interaction among decision-makers in Europe's capitals. -Foreign Affairs

    A reconstruction that may be considered definitive. Revelations on the European negotiations are written with talent and go hand in hand with no-esoteric economic analysis and with the right amount of realism to reach the political substance. -Corriere della Sera

    Anyone looking for general knowledge and deeper understanding of the crisis, I can recommend a formidable analysis by Carlo Bastasin: Saving Europe. The author is a very unusual combination of a qualified economist and driven journalism. -Svenska Dagbladet

    eISBN: 978-0-8157-2614-2
    Subjects: Business, Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Foreword
    (pp. vii-x)

    If the euro crisis were a simple matter, Carlo Bastasin could have written a simple book. But its very complexity gives the crisis its essential character. In particular, it is this complexity that has rendered the crisis all but intractable. Europe faces not just one pressing economic and political problem but a series of distinct if related crises. Each of these, moreover, is subject to different, incompatible interpretations in different EU member states. Those incompatible interpretations in turn create political problems. They frustrate efforts to agree on a common diagnosis and, as a consequence, to mount a concerted response.


  4. PREFACE TO THE SECOND EDITION The First War of Interdependence
    (pp. xi-xvi)
  5. Acknowledgments
    (pp. xvii-xx)
  6. 1 The Origin of Mistrust
    (pp. 1-22)

    It did not either knock on the door, or crash the gate. In September 2008, the global financial crisis entered in Europe in silence and brought it to the brink of collapse in a surreal obscurity.

    While all the lights were focused on Wall Street’s bankruptcies shaking the world, Chancellor Angela Merkel entrenched herself behind a wall of silence as she saw Germany, hidden from public awareness, head toward the same financial meltdown, as one bank after the other risked crumbling before her eyes.

    On October 4, 2008, on the stairway of the Elysée Palais in the heart of Paris,...

  7. 2 The Secrets behind the Banks
    (pp. 23-42)

    For Jean-Claude Trichet, a lifelong experienced public official, the Lehman and the Hypo Real Estate events had been incredibly demanding. Although the U.S. financial system was the epicenter of the crisis, the European Central Bank (ECB) president knew that banks played a much more crucial role in the European economy than in the United States because they provided a much larger slice of credit to the economy. Moreover, he knew that banks were central to the web of national systems of power in the euro area member states, as the drama around HRE had shown. Still, Trichet was watching with...

  8. 3 Europe’s Awkward Ambitions to Change the World
    (pp. 43-58)

    The onset of the financial crisis in the United States offered a wonderful chance for the Europeans to change the financial system, to regulate globalization, and finally to make the world economy more respectful of the principles that they chose as basis for the European society: “pluralism, non-discrimination, tolerance, justice, solidarity” (as in article 2 of the Treaty on European Union). However, instead of promoting unity in Europe, the initial phase of the U.S.-induced crisis offered national leaders the best chance in decades to vaunt their personal primacy on the world stage and praise the nature of their national models....

  9. 4 Too Different for One Policy
    (pp. 59-72)

    The inability of European leaders to offer a collective answer to the crisis was not just a function of their competition to lead Europe, or the world. As the events at the end of 2008 show, it was also a consequence of the deep underlying differences in economic structure among their countries—differences that the introduction of the euro had magnified rather than narrowed. Differences among regions of an integrated area are not only normal, but even desirable, because they reflect the necessary specialization of each area. Inevitably the different activitites result in different levels of productivity and trade imbalances,...

  10. 5 First Doubts about the Euro
    (pp. 73-85)

    By the beginning of 2009, evidence had emerged that the financial crisis was bound to become a sovereign debt crisis—with all the implications that would have had for the integrity of the euro area. Only an astonishing case of selective distraction can explain why this development was lost in the public debate at the time, and then forgotten. The repatriation of both politics and policies that we saw in the last chapters was probably responsible.

    It should have been obvious that the problems of the banks were becoming a huge burden for some states. But banks were dealt with...

  11. 6 The American Crisis Becomes the European Crisis
    (pp. 86-95)

    The dispute between Germany and France on the management of the euro zone dated from the first concepts of deeper economic integration in Europe. In the January 1991 French draft of what was to become the Maastricht Treaty, a proposal for an economic government parallel to the ECB was clearly stated. Such a proposal could not survive the opposition of the Bundesbank, which saw the need for a full-fledged political union if the euro zone countries were to share fiscal responsibilities. However, French diplomats considered it a national victory that they managed six years later, in 1997, to achieve agreement...

  12. 7 The European Central Bank’s First Rescue of the States
    (pp. 96-108)

    In the spring of 2009, long before the debates of 2010 about getting the European Central Bank to help struggling governments finance their debts, the ECB actually provided them with indirect help—in a stealth violation of its mandate. The secret deal, call it the “Grand Bargain,” was closed behind the scenes and formally respected both the EU treaty and the Statute of the ECB. But the fact is that when, in May 2009, the ECB decided to step in decisively and help the ailing banks through a huge provision of liquidity, these banks were asked by the governments to...

  13. 8 Karlsruhe, Ruling the World from the Province
    (pp. 109-120)

    After nine months of unprecedented economic troubles and political divergences, Chancellor Merkel’s speech on May 27, 2009, at Berlin’s Humboldt University was anxiously expected around the world. For Europe, the month and location were highly symbolic. May 9 had been the fifty-ninth anniversary of the declaration by then French foreign minister Robert Schuman that a new form of organization of states in Europe would be formed and called a supranational community. This was the proposal that inaugurated the building of a united Europe. Moreover, Humboldt University was the place where nine years earlier on May 12, 2000, Joschka Fischer, then...

  14. 9 The Well-Known Secret of the Greek Tragedy
    (pp. 121-132)

    George Papandreou and his Socialist PASOK party had won parliamentary elections just two days earlier, when on October 6, 2009, Bank of Greece governor George Provopoulos reported privately to him that the country’s budget deficit was escalating above a shocking 10 percent of GDP. Officially, Greece was still expected to run in 2009 a deficit of only 3.7 percent. In the same hours, the European Commission in Brussels—unaware of the revision in Athens—was presenting its annual report on the euro area, which included the old and much more comforting figure for the Greek deficit. What central banker Provopoulos...

  15. 10 Let Greece Default?
    (pp. 133-145)

    On January 12, 2010, the European Commission confirmed that Athens had falsified its statistics and that “severe irregularities” had been detected in Greece’s accounting of its public deficit. Chancellor Merkel declared instantly that Greece’s mounting deficit risked hurting the euro, which was going to face a “very difficult phase” in the coming years. The comment, posted on the German government website, was soon removed. Heated sentiments were breeding on the heels of the Greek shock. Sometimes they translated into public statements made by the highest political representatives of single countries, thus immediately causing extreme reactions in the markets.¹ Three days...

  16. 11 Bringing the Euro to the Brink, in Order to Save It
    (pp. 146-159)

    In the late winter of 2010, Europe’s rhetoric inclined toward Oswald Spengler’s tragic vision of Western decline, plagued by the power of money, the disintegration of communities, and the domination of plutocrats and demagogues. It was an irrational vision but was deeply entrenched in European culture and rooted in the nervous system of societies. While politics struggled to cope with the financial crisis, the “power of money” had emerged out of the metaphor between February and March. With a typical mix of leveraged bets, frantic information, and herd behavior, financial markets interacted with the emotions of public opinion across the...

  17. 12 Sell Your Islands
    (pp. 160-169)

    Hoping to break the gridlock between Greece and Germany, Prime Minister George Papandreou visited Angela Merkel in Berlin on March 5, 2010. Even before he arrived, however, the chancellor announced what would not be discussed: “I expressly want to say [that the meeting] isn’t about aid commitments, but about good relations between Germany and Greece.” For Papandreou, that was like the crack of the whip. “We have fulfilled to the utmost all that we must from our side; now it’s Europe’s turn,” Papandreou told his fellow ministers just before taking off for Berlin. The Greek government had just announced a...

  18. 13 Contagion
    (pp. 170-180)

    At the beginning of April 2010, the Greek situation seemed to be getting worse by the day, and the markets questioned whether the European partners were committed firmly to giving Athens a chance to avoid default. The interest rate premium Athens was asked to pay over benchmark German bonds rose by more than 4 percentage points, its highest level since Greece joined the euro in 2001. The interest rate was above the threshold of 7 percent, considered an alarm bell for unsustainable borrowing costs. By the end of May, the Greek government faced a total financing requirement of around €29...

  19. 14 Dr. Faust Saves the Euro
    (pp. 181-204)

    The fears and the fury of the markets could not be contained by the painstaking and long negotiations over the Greek loan. European leaders needed urgently to grapple with a host of broader issues, first of all, setting up a sizable financial fund, especially for a number of countries looking less and less stable. The Greek agreement had simply come too late. Contagion was vigorously proceeding and the euro area was never so close to collapsing as at the beginning of May 2010. To counter the disruption in the markets, two more high-level meetings were scheduled, the first at the...

  20. 15 From a New Complacency to the Irish Crisis
    (pp. 205-218)

    “Ladies and gentlemen, let’s not talk around it: The crisis over the future of the euro is not just any crisis. It is the greatest test that Europe has gone through since 1990, if not even in the fifty-three years since the adoption of the Rome Treaty. This test is an existential one. It must be passed. Failing it, the consequences would be incalculable for Europe and beyond. But succeeding, then Europe will be stronger than before,” Angela Merkel declared.

    Only three days after the last of the series of fast-paced EU meetings in early May 2010, and when markets...

  21. 16 A Sophisticated Way to Commit Suicide
    (pp. 219-235)

    October 18, 2010, was the much-awaited deadline for accomplishing the resetting of the economic governance of the EU. It turned out to be a fateful day, one of the worst for the whole crisis. That something was going wrong became evident during the morning. When EU finance ministers arrived in Luxemburg for a meeting of the Economic and Financial Affairs Council (ECOFIN) on that Monday, Germany’s Wolfgang Schäuble and France’s Christine Lagarde were not among them.

    Ireland was on the brink, but was still resisting the pressures from Brussels, from the European heads of governments, and from European Central Bank...

  22. 17 A Fateful Fight between the ECB and the Heads of Governments
    (pp. 236-254)

    European Central Bank president Jean-Claude Trichet was very alarmed when he understood that the heads of governments intended to delay the launching of the weaponry necessary to defend the euro—particularly the “stabilization” funds that were to relieve the Central Bank from the burden of purchasing sovereign bonds. For months, he had been asking for a “quantum leap” in economic governance and had warned that defaults would be made more likely as a result of suggestions that private bondholders might be forced to accept losses. Indeed, the markets had received that idea very badly, increasing Trichet’s concerns that the crisis...

  23. 18 The Crisis Reaches Italy and Spain
    (pp. 255-282)

    The decision by the European Central Bank to stop buying the bonds of Greece, Portugal, and Ireland was a major episode of the tug-of-war between the ECB and the national governments. Both sides underestimated the unintended consequences that their conflict—centered on the institutional setting of the stability funds and on future economic governance—would have on the private economy. It was a fatal mistake.

    Carried away by the dominant rhetoric that described the crisis as the consequence only of fiscal profligacy, European governments seemed unable to understand that the mechanism for transmitting contagion of the sovereign debt crisis was...

  24. 19 Berlusconi’s Moral Hazard and the German Waterboarding Strategy
    (pp. 283-307)

    Maybe for the first time in his life as a politician, Silvio Berlusconi had lost his touch with the public. Scandals had marred his charisma and poor results had tarnished his image as a successful entrepreneur on loan to the world of politics. Fearful of being judged, condemned, and finally jailed at age 75 for personal improprieties, he was determined to hold onto his power as long as possible. Since the beginning of the financial crisis, national governments in Europe had suffered a string of losses at every election. In France and Germany, the opposition had taken the lead in...

  25. 20 Solution or Dissolution: Political Union or the End of the Euro
    (pp. 308-339)

    At the beginning of October 2011 a vicious circle seemed to be leading the euro area toward breaking up. The banks’ fears had grown since the application of PSI (the so-called haircut of 21 cents for each euro the banks owned in Greek sovereign bonds). In September the EU-ECB-IMF troika alerted the euro zone authorities that, due to the worsening economic conditions and increasing Greek public debt, the “haircut” had to be much higher, around 50 to 60 percent of the debt in the hands of private investors.¹

    Once more, investors saw the Greek model as suggesting what could happen...

  26. 21 The Limits of Democracy
    (pp. 340-387)

    The dramatic events that occurred behind the scene in Cannes (unveiled in pages 322–37) and the concurrent changes of government in Spain, Greece, and Italy at the end of 2011 or just earlier (Portugal and Ireland) highlighted the emergence of new political priorities not chosen by the people: most important, financial stability came forth as a higher good than political stability itself. In the summer 2011, Spanish prime minister José Luis Zapatero spontaneously chose to push forward elections in hopes of containing the country’s financial instability, even knowing that he would lose. Prime Minister George Papandreou’s call for a...

  27. 22 Whatever It Takes
    (pp. 388-412)

    No matter from which angle one looked at it, the story was clear as of the end of June 2012: Governments, unable to take responsibility for a public and common agreement, shifted the burden of saving the euro onto the shoulders of Mario Draghi. Not onto the European Central Bank (ECB) as an institution, but literally onto its president, who could not even count on having undisputed support among his colleagues in Frankfurt. “Many here are totally opposing any engagement of the bank,” he confessed after the European Council meeting of late June to a colleague, who described Draghi as...

  28. 23 The New Hierarchy
    (pp. 413-451)

    The crisis had been traumatizing for national policymakers. Since 2010, no fewer than nine of the euro zone’s national government leaders had been expelled from office. The approval ratings in many countries for membership of the European Union had been sharply declining. Voters had been giving more support to fringe parties. The 2011 election in Greece had taken this trend to extremes, with almost 70 percent of the votes going to parties that wanted to tear up the country’s bailout deal. But something similar, if more muted, was visible from Finland to the Netherlands, and from France to Germany. In...

  29. 24 Conclusion: A Dreamless Night
    (pp. 452-472)

    The European dream was both the rejection of war and the creation of a new spirit of peaceful cooperation. During the economic crisis mistrust has prevailed instead. Risks of unexpected magnitude have put the spirit of solidarity into the second rank. Risk control, as in old-style national diplomacy, turned cooperation into something different: power politics where hierarchies between states have emerged and vulnerable countries have been “contained”—their economies shrunk and their autonomy restrained, as in the logic of an armed conflict. This represents a rude awakening from the European dream. How the backtracking developed has been shown in this...

  30. Notes
    (pp. 473-528)
  31. Index
    (pp. 529-543)
  32. Back Matter
    (pp. 544-544)