The only excuse which comes to mind is that the EU never had to deal with such problems before and, therefore, lacked the necessary competence. That was in fact the case but when one lacks necessary competence, one is obligated to seek it elsewhere where it exists. The IMF would have been the first address to contact but EU-elites, at first, wanted nothing to do with the IMF because “we can solve Europe’s problems on our own”. Another address would have been those who were involved in the Latin American debt crises during the last decades. In actual fact, those people even offered EU-elites their advice but they were politely ignored, arguing that what worked in an emerging country has no application for an EU-member.
Citibank was the principal player in the Latin American debt crises of the last decades. The NYT today quotes a Citibanker as follows:
“There is simply no excuse for Trichet and Europe getting this so wrong,” said Willem Buiter, chief economist at Citigroup. “It is fine to make default a moral issue, but you also have to accept that outside of Western Europe, defaults have been a dime a dozen, even in the past few decades.”
The entire article is here.
The time has come to bluntly place the responsibility to where it belongs so that perhaps insight still occurs and changes behavior of EU-elites. Therefore, j’accuse:
1) From the start, EU-elites declared the Greek problem as a problem of the Euro and, in the final analysis, of the EU. A mistake of gigantic proportions!
2) Greece was never admonished by the EU that debt problems are in the first instance an issue between the borrower and his lenders. Instead, they delivered a textbook case for how not to deal with a country’s debt problems.
3) Neither were banks admonished by the EU to deal directly with their borrower in this matter by forming a Steering Committtee with which Greece could negotiate.
4) In fact, to this date the EU itself has not officially formed a Steering Committe with which Greece and the banks could negotiate.
5) Everyone at the EU, national governments or Central Banks, feels free to say publicly whatever they want. There is no coordination of such announcements and there is certainly no care given to the proper formulation of such announcements.
6) EU-officials freely made announcements which contradicted the announcements of other EU-officials (and sometimes their own earlier announcements). Record-holder in that regard is undoubtedly the public chatterbox Jean-Claude Juncker.
7) The ECB did not understand that Central Bankers should say publicly as little as possible and when they do say something, is has the character of policy-declaration.
8) The ECB did not understand that it would have to immediately distance itself from false and/or irresponsible announcements of members of their board (for example when Bini Smaghi said that “the idea of an orderly debt rescheduling is a fairy tale”).
9) EU/ECB-officials demonstrated an amazing lack to technical knowledge as regards the management of sovereign debt. They treated “rescheduling” and “haircut” as though the two belonged together. They treated a “haircut” as though it was a normal thing for a country. They did not seem to want to learn from debt reschedulings which had been made before. They refused the advice of people who are experts with sovereign debt reschedulings.
10) EU/ECB-officials perverted the role and responsibility of banks in a debt problem. Instead of holding banks accountable, they jumped forward from the start to relieve banks of their risk. When they later tried to correct this, it was mostly too late. They listened to the criticisms of bankers instead of reminding most of them that they only still existed because of government help; instead of challenging lead bankers to publicly assume responsibility.
11) EU/ECB-official irresponsibly mixed 2 different problems. The problems of banks (and the bail-out of many) should have been managed directly with the banks and the problem of Greece should have been managed directly with Greece.
12) Finally, the President of the ECB was bid farewell in a pompous ceremony. Instead, he should have been replaced sooner.