European Union tested by world economic crisis
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European Union tested by world economic crisis
By WILLIAM J. KOLE, Associated Press Writer 1 hour, 49 minutes ago
Wall Street's woes extend far beyond Main Street and all the way to Law Street — the hulking headquarters of the European Union.
But the 27-nation bloc based at Rue de la Loi in Brussels, Belgium, hasn't taken sweeping joint action to deal with the global financial meltdown.
Instead, it's essentially left member countries to go it alone with a patchwork of measures aimed at keeping banks afloat.
Frustrated investors want to know why, and some have begun to question whether the EU — at its core, an economic union — will survive.
Although the EU pledged to act as one to calm roiled markets, it hasn't done much beyond a move Tuesday to boost guarantees on savings accounts.
That's led member states to take an a la carte approach, with major economic powerhouses like Britain and Germany putting together rescue packages, leaving smaller nations like Iceland to take the fall.
It's a risky business for the EU: In the short term, banks in poorer countries may flounder and fail. And by relinquishing key decisions to its members just as they're turning to EU headquarters for guidance at a time of crisis, the bloc could see decades of attempts to forge unity simply disintegrate.
Already, the 27 EU nations are divided over deploying troops to Afghanistan and deadlocked on a constitution designed to transform their union into a political super-state. Only 15 countries now use the common euro currency and the pride of the bloc — passport-free travel — doesn't apply to the entire EU.
Failure to pull together now on the financial crisis could push member nations even further apart, perhaps emboldening a resurgent Russia's influence on the fringes of the enlarged EU.
"Europe is in the midst of a once-in-a-lifetime crisis," 256 of the continent's leading economists said Tuesday in an open letter to EU leaders.
"Unless European leaders immediately unite to address this crisis before it spirals out of control, they may find themselves fighting over how best to salvage the aftermath," the economists said. They evoked "the dark years of the 1930s," adding: "It is not an exaggeration to say that it could happen again if governments fail to act."
And failure to act in unison has been an EU hallmark over the past few years.
A campaign to get all 27 nations to ratify a European constitution designed to streamline decision-making and give the expanding bloc more of a voice in world affairs remains stuck in limbo. Irish voters rejected it in June, three years after resounding "No!" votes in France and the Netherlands.
Many who backed a greater global role for the EU have consoled themselves by focusing on its roots as an economic union. Today's EU sprang from the six-nation European Economic Community established in 1957.
But the bloc designed to unify is riven by all kinds of divisions.
EU members have clashed repeatedly on deploying troops to Afghanistan or even whether to send 24 of their estimated 12,000 military helicopters to Darfur. They've bogged down completely on more thorny issues, such as how to respond to terrorism or recognize an independent Kosovo.
That makes the credit crisis now rattling markets and consumers worldwide even more of a test.
If the EU can't forge a common response to a collapse that transcends borders, involves multinational lenders and has pushed the euro currency down to its lowest level in a year, some wonder: What's the point of having an EU?
EU leaders have forfeited "a chance for Europe to find new leadership and credibility on the world stage," Italy's Il Sole 24 Ore financial daily said Tuesday. Instead, it warned, the leadership vacuum thrusts the entire bloc into "a suicidal position."
As calls mounted for a unified plan of action, EU finance ministers held an emergency meeting Tuesday in Luxembourg to debate raising guarantees for private savings across the bloc.
They agreed to raise the minimum bank deposit guarantee to $68,160 (euro50,000) — but that's just half of the $135,000 (euro100,000) backing that France wanted. Private deposits in most of the EU had been insured only up to $27,000 (euro20,000).
At the same time, some European governments have taken unilateral action: Germany pledged to guarantee all private bank savings and CDs in the country, and Iceland and Denmark followed suit. Ireland went even further by also guaranteeing Irish banks' debts.
It was easier for the EU to take common positions when it wasn't so big. Today's bloc is unwieldy, and it includes eight ex-communist countries that don't always take kindly to the notion of government intervention.
"The politicians in Europe are crazy. We didn't live under communism for 40 years just to return to it on EU soil," said Czech Finance Minister Miroslav Kalousek, who opposes 100 percent guarantees on bank deposits as unaffordable.
His Spanish counterpart, Pedro Solbes, disagreed. In a shared business climate, "decisions should be taken in agreement and not individually," he said.
El Pais, Spain's leading newspaper, agreed, warning in an editorial Tuesday: "There is a real risk that a great quantity of money will flow from those countries with fewer guarantees to those whose deposits are backed up absolutely."
Italian Premier Silvio Berlusconi has been pitching the idea of an "umbrella" fund for the common market. But German Chancellor Angela Merkel has ruled out a U.S.-style, EU-wide bailout of troubled banks.
Merkel's spokesman, Thomas Steg, told reporters Tuesday that although EU coordination is important, Germany believes "each must endeavor to solve the problems with the means and methods available to him."
"It's very painful that Europe is now divided," said Willem Vermeend, a former Dutch junior minister for finance.
"But I understand very well that countries say, 'We're going to take measures ourselves now.' If it doesn't come from Europe, you can't wait for Europe."
But, he added: "We need to save the economy. Period."
Associated Press writers Geir Moulson in Germany, Alessandra Rizzo in Italy, Ciaran Giles in Spain, Karel Janicek in the Czech Republic and Toby Sterling in the Netherlands contributed to this report.