Euro-Crisis governance: politicians or technocrats?

• Author: Kramer, Robert D.
• Position: WASHINGTON BEAT

In November, the Greeks and Italians replaced their well-known national political leaders with two "Eurocrats"--Lucas Papademos, former vice president of the European Central Bank (ECB), and Mario Monti, former European Union competition commissioner.

Both will lead interim "technical" governments through the painful economic readjustments deemed necessary to stave off national default and possible departure from the euro zone. In the meantime, the other euro zone members and ECB continue to seek a way forward that balances enough financial commitment to satisfy panicky investors, but not so much to completely infuriate voters--so far unsuccessfully.

Since June, 10 European Union governments have fallen, the Spanish Socialists, after eight years in power, being the most recent (on Nov. 20). While a dramatic expression of popular will, these widespread changes in governments have so far produced neither a lasting solution to the financial crisis, nor a quieting of public unrest.

In particular, Germany seems caught in a quandary between understanding the importance it plays as the most capable (perhaps the only) economic engine available to pull the euro zone away from disaster, and feeling the moral outrage of its citizens toward the perceived profligacy and even dishonesty of the Mediterranean governments.

The Situation Weakens

German Chancellor Angela Merkel recently told her fellow Christian Democrats that answering the crisis required "not less Europe but more ... That means creating a Europe that ensures that the euro has a future." Yet her government continues to resist aggressive ECB measures to lower interest rates on Greek and Italian debt and any efforts to Europeanize sovereign debt issuance. Hampered by gridlock borne of fear and finger-pointing, the euro zone countries are now looking to China and the International Monetary Fund to help stabilize the situation from further deterioration.

Perhaps the one point of agreement among all the players is that Europe, and by contagion the global economy, stands near the precipice. Taking into account the Euro-crisis, a recent San Francisco Federal Reserve research letter concludes that the odds of a U.S. recession occurring in the first half of 2012 now exceed 50 per cent. Slowdowns in the EU and the U.S. would significantly impact Japan and the developing world.

Yet the inability of the U.S. to deal with its own economic slowdown and debt...