Ted Bromund and Daniella Markheim of the Heritage Foundation debunk the EU narrative regarding the current global financial crisis. According to that narrative, the crisis is the fault of the United States, not Europe.
This premise provides the rationale for resisting President Obama’s call on European nations to enact aggressive stimulus programs. Why should they go further into debt to revive the economy of the nation that caused the crisis, European leaders ask.
The Europeans probably are well advised to eschew stimulus plans and the other opportunistic spending programs Obama has pushed in the U.S. After all, they already have European-style economies . But, as Bromund and Markheim show, the notion that European policies did not contribute significantly to the current crisis is a myth.
Consider the banks. Bromund and Markheim point to a survey by the Centre for European Policy Studies which found that the average leverage ratio of Europe’s twelve largest banks as of September 2008 was 35 to 1, compared to less than 20 to 1 in the U.S. The survey described Europe’s ratios as “a disaster in waiting.”
Or consider real estate. The IMF has noted out that, in the run-up to the crisis, “credit aggregates grew extremely fast in the United Kingdom, Spain, Iceland, and several Eastern European countries,” fueling real estate booms. As Bromund and Markheim explain, “the bubbles in Europe were as unsustainable as those in the U.S.”
More generally, according to the IMF, “[l]ow interest rates, together with increasing and excessive optimism about the future, pushed up asset prices … [in] a broad range of … advanced countries and emerging markets.” (emphasis added) The result, say Bromund and Markheim, was a search for yield and the creation of ever-riskier assets. This phenomenon certainly was not limited to the U.S.
Not surprisingly, the Europeans are attempting to leverage their false narrative into global policies that will favor their interests. Thus, they are calling for a global regulator with a mandate to ensure the stability and balance of the world economy. This, say Bromund and Markheim, would enable the Europeans to force their slow growth model on the rest of the world. Similarly, the campaign against “tax havens” represents an “effort to force other nations to adopt Europe’s own anti-growth, anti-competitive tax regime.”
European leaders may not agree with Obama on the causes of the crisis, or on the viabililty of stimulus plans as a solution. However, they do share the view of Obama’s chief-of-staff that one should “never let a serious crisis go to waste.”