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The euro crisis demands leadership, wherever it comes from

Angela Merkel is doing her best with a recalcitrant electorate, but it is no surprise that the US and China are anxious for a voice

The universal cry seems to be: what the world economic crisis needs is leadership. Almost everywhere I go, when the eurozone is discussed, the lament is the same.

The focus, inevitably, is on European politicians and “leaders” in general, and German chancellor Angela Merkel in particular. Given the marked slowdown in what was already an anaemic pace of growth in Europe, and the lamentable stand-off between creditors and debtors, the Americans and the Chinese are becoming increasingly vocal about the need for Europe to get its act together.

With the banking system still vulnerable, and signs of the kind of distrust between financial institutions that preceded the seizing-up of the system in 2007, there is panic in the air.

Of course, the financial world does not consist solely of casino bankers. There are lots of managers of other people’s money who are seriously concerned about what to do in the face of the seeming paralysis of policy in the eurozone, yet conscious that through rational actions to safeguard their funds, they can accelerate a move towards disaster for one or more of those unhappy countries known as “sovereign debtors”.

But back to leadership: much has been made of former chancellor Alistair Darling’s bitterness about Gordon Brown’s general behaviour. Yet there is an important paragraph in his memoir, Back from the Brink, where Darling maintains that the G20 rescue operation for the world economy in spring 2009 would not have happened but for Brown’s leadership. This is a remarkable tribute.

Unfortunately, just as Dominique Strauss-Kahn’s sexual habits catapulted him out of the financial crisis leadership stakes, Brown’s habit of rubbing so many of his British colleagues up the wrong way meant he did not stand much chance of government or Treasury support in his bid to succeed DSK.

Brown’s 2009 success offered hope on another front to the astronomer royal, Lord Rees. In the context of carbon emissions, Rees says in his book From Here to Infinity: “Odd though this may sound, the political response to the 2009 financial crisis may offer encouragement. Who would have thought three years ago that the world’s financial system would have been so transformed that big banks were nationalised? Likewise, we need co-ordinated, outside-the-box action to avoid serious risk of a long-term energy crisis.”

Was that a one-off exercise of political leadership, or is there a chance that, between them, our present crop of leaders will come up trumps? Personally, I think Merkel is doing her best in appallingly difficult circumstances. But her best does not seem to be enough. She may have the political will for the eurozone to survive, but will her coalition?

The US administration’s concern for Europe evokes memories of the US’s role in helping Europeans to get back on their feet after the devastation of the second world war. In this the Marshall plan was vital. It was essentially the brainchild of President Truman but, as Truman observed, “It is amazing what you can accomplish if you do not care who gets the credit.”

Washington was always a powerful force behind what became the European Union, although, paradoxically, it was dissatisfaction with US economic leadership, or lack of it (“benign neglect”) in the 1970s that led West German chancellor Helmut Schmidt and French president Valéry Giscard d’Estaing to embark on the adventure of the European Monetary System (EMS), which led, in turn, to the eurozone.

After the turbulence of the break-up of the Bretton Woods international exchange rate system and the first oil crisis of 1973-74, the godfathers of the EMS wanted “a zone of monetary stability”. In the eurozone, their successors have produced a zone of exchange rate stability, but a zone of utter instability when it comes to the conjunction of the banking and sovereign debt crises.

It is perfectly understandable that hard-working Germans should resent bailing out Greeks who do not bear gifts. But those same German electors are almost certainly not sufficiently aware of the benefits they have derived from the way that – already possessing a competitive export sector – they became super-competitive under the single currency, because Italy and others could no longer adjust their exchange rates to compensate for lost competitiveness.

One fears that Italy has had its come-uppance. Way back in February 1997, in the run-up to the launch of the single currency, its then prime minister, Romano Prodi, went to Germany and rather rashly said: “We see our future in Europe. I don’t know if that is the case in Germany.” He even added: “Last year Germany was a model. This year Germany is a disaster. I would expect stronger leadership from Germany.”

The problem is that the Keynesian message has yet to penetrate German political and economic culture, as Lawrence Summers recently pointed out in the Financial Times. This pre-Keynesian approach permeated the Maastricht treaty that led to the single currency, and many commentators are drawing quite the wrong conclusion from the fact that Germany itself broke the fiscal rules: if ever rules were made to be broken, they are the fiscal ones that dominate the present debate. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds