Everybody and their brother is doing a cover of Carly Rae Jepsen's "Call Me Maybe." (You've got the Harvard baseball team, the Duke women's lacrosse team, the SMU women's rowing team). The lyrics of the bubble-gum pop song capture the angst of someone who feels a sense of urgency — you see, Carly Rae is really eager to do something about the situation she finds herself in — but doesn't want to be too proactive. It's not "I'll Call You For Sure" or "Call Me ASAP!"
I'm still waiting for German Chancellor Angela Merkel and European Central Bank President Mario Draghi to put their version up on Youtube. Because the European powers are definitely taking a "Call Me Maybe" approach toward their ongoing financial crisis.
Let's review. America's financial panic ended in the spring of 2009. But Europe has been seized by a series of rolling banking and fiscal crises. So far, three constituent members of the euro zone have officially cried uncle and asked for bailouts — Ireland, Greece and Portugal. A fourth — tiny Cyprus, whose banks are heavily exposed to Greece and has been relying on direct loans from China and Russia — is poised to ask for help.
And Then There's Spain
And then there's Spain. Spain sports an unemployment rate of 25 percent and a shrinking economy. Large banks that passed stress tests less than a year ago are now revealed to be functionally insolvent. Bond investors are demanding interest near six percent to borrow for 10 years. Capital can quite easily leave Spain for other nations in the euro zone, and is doing just that. Spain's plan seems to be to test the bond markets by issuing new debt, which is somewhat akin to Spain's decision to launch its ill-fated Armada back in 1588, and to suggest that Europe consider overhauling its approach to bank regulation and capitalization.
The European response? "Call Me Maybe." Europeans bristle when Americans point out that residents of the continent don't work as hard as their trans-Atlantic cousins. Europeans have been known to take August off, and in many countries retail stores are closed on Sundays. The Europeans claim that they're plenty productive because they work more intelligently, and that work-life balance is a valuable societal goal. They're right. But sometimes you have to work weekends, cancel holidays, and pull all-nighters — especially if you are in the middle of a once-in-a-generation financial crisis that threatens to tear the euro zone asunder and hurt the global economy!!!
U.S. policymakers and bankers routinely stayed in their offices over the weekends in the cruel summer of 2008, subsisting on pizza, engaging in marathon conference calls, working furiously to calm markets and avoid train wrecks. In Europe? Not so much.
ECB: Where's the Plan?
I clicked on the Financial Times over the weekend hoping to learn of news that the European Central Bank had concocted a new bank insurance plan. After all, the way to halt banking panics as we're seeing in Greece and Spain is to institute a comprehensive deposit scheme, so people and companies know their deposits are safe. But no dice. Meanwhile, banks and other financial actors are proving reluctant to facilitate cross-border trade within the euro zone. Would you go on the hook to guarantee a deal between a Greek feta cheese exporter and a Spanish hotel chain right now? But you won't find any coverage of a plan by the ECB, or by the governments of France and Germany, to provide insurance for trade finance or other debt instruments.
Instead, European leaders are planning a summit on June 28-29, a full four weeks from now, at which they will discuss far-reaching issues of fiscal union. In their defense, the ECB and other European policymakers argue that they lack the authority to issue such guarantees, to print money to help governments, or to directly inject capital into banks. That may be true. But in times of crisis, improvisation is the order of the day.
In 2008, U.S. Federal Reserve Chairman Ben Bernanke, New York Federal Reserve President Tim Geithner and Treasury Secretary Henry Paulson repeatedly got together to cook up initiatives that quickly gained the sanction of the central bank, the executive branch, and after some hemming and hawing, the legislative branch. Yes, the chain of events leading from the backstopping of AIG and Fannie Mae and Freddie Mac to TARP and a series of financial backstops and guarantees was chaotic, largely avoidable, and the result of poor planning and non-regulation. But they ultimately succeeded in stopping the panic.
Nonchalance in the Face of Crisis
The nonchalance in the face of crisis is being demonstrated by Germany, the dominant power in the European Union and in the hallways of the European Central Bank. Germany is reluctant to reward what it sees as the profligacy of its neighbors to the south and west with no-strings-attached bailouts, and is reluctant to commit taxpayer money to rescue efforts. That's understandable. What's not understandable is Germany's failure to acknowledge that it is one of the primary beneficiaries of the euro zone bailouts.
Germany sends 40 percent of its exports to other countries in the European Union. As the zone goes into recession, and some of its larger members head toward collapse, who is going to buy all those luxury cars and appliances? Germany's banks were among the biggest foreign holders of Greek debt and Irish bank debt, which means that a large chunk of the bailout funds that have flowed to those countries have simply returned to Germany in the form of bond payments. The Financial Times reported in April that, at the end of 2011, German banks had $146 billion of exposure to Spain. Deutsche Bank has 250 retail branches in Spain and had more than $10 billion in mortgages in the country. I wonder how those are faring right now?
And yet Germany — and the institutions it dominates — seems content to let Spain struggle and to see conditions throughout the euro zone continue to deteriorate. In a few weeks, they'll be happy to discuss these and other issues.
To quote Ms. Jepsen: "This is crazy."
Daniel Gross is economics editor at Yahoo! Finance.
Follow him on Twitter @grossdm; email him at firstname.lastname@example.org.