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AN INCREMENTAL EU ADVANCE December 14, 2012

Posted by wmmbb in European Politics.
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The Finance Ministers are now discussing and will be deciding the latest proposal to give the European Central Bank supervision over the 6000 banks of the Eurozone, subject to approval by the European Parliament.

Europe does not have the luxury of a central government, and has somehow to frame a consensus among 27 national governments. By contrast, it shows the accomplishment of federal systems, despite their failings in Australia and the US, that were achieved by large steps and vision. Once the federal union was achieved, institutions and economic institutions can be made to order and modified over time, usually favoring the central government. With the European Union framework, progress is often slow and incremental, which seems to mean they tend to dance on the edge of the abyss.

Deutshe Wella reports:

Thursday has bought an early morning deal between EU finance ministers on a new banking supervisor. It is a single but important step towards a full banking union.
European finance ministers struck a deal in the early hours on Thursday to give the European Central Bank (ECB) new supervisory powers over eurozone banks.
“We have a deal,” confirmed an EU official. The news immediately impacted on the markets, sending the euro to a high of 1.3080 against the U.S. dollar.
After 14 hours of heated talks, finance ministers came to an agreement which would give the ECB power to police the biggest banks in the eurozone and intervene in struggling smaller banks.

. . .

Such an achievement would be one of the EU’s biggest since the debt crisis began. It could also help to snip away at the “doom loop” between debt-ridden banks and destabilized governments.
But it would still constitute only one chapter in the banking union saga – apart from the banking supervisor, a resolution authority, a fund for collapsed banks and coordinating deposit guarantee schemes to prevent bank runs will all be crucial ingredients for a comprehensive solution to Europe’s banking crisis. Building such an architecture is likely to take several years.

Chancellor Angela Merkel is the main player. Her hard line position on austerity and financial discipline plays well in Germany but is a public relations disaster in Greece and Portugal. Outside of Europe, it seems, her major destinations are Washington and Beijing. She is a theoretical chemist rather than an economist. Coming from East Germany, it is suggested, she is not as romantic about the European Union, as other German leaders have been. According to Konstantin von Hammerstein and René Pfister in Der Spiegel she disdains visionary thinking and relies on taking small steps and muddling through. They write:

In Europe, she applies the same method she has already perfected in domestic policy — a method she essentially acknowledged two years ago when she quoted Karl Popper during her New Year’s address. The actual quote, “the future is wide open,” was surreptitious, but it served to demonstrate that Merkel is familiar with the social philosopher, who died in 1994. And her familiarity is telling.

Popper, after all, is the great theoretician of a policy best described as muddling along. He argued that policy should not be based on visions, but instead should move forward in small, manageable steps. Popper called this approach “piecemeal social engineering,” and it holds that even far-reaching social changes can only be achieved through small steps. If they prove to be flawed or wrong, they can be corrected or reversed as necessary.

Helmut Schmidt — who once said: “People who have visions should go see a doctor” — was the last chancellor to publicly invoke Popper. Merkel hasn’t been known to make similarly categorical statements, but Popper would nonetheless be pleased.

Merkel’s predecessor Gerhard Schröder was at his best when the air in the Chancellery was saturated with testosterone and a showdown was looming. He yearned for the great dramatic moment, a giant explosion or the ultimate political dispute. It’s an approach that his successor finds abhorrent.

You don’t solve things with grand posturing, she said this summer. She prefers to dissect problems, making them smaller and she slows things down if need by, thereby removing the tension from certain processes.

At a recent dinner at the Chancellery, Merkel reportedly worked out a simple equation: According to former Chancellor Ludwig Erhard, she said, 50 percent of the economy is psychology. Therefore, she noted, would only say nice things about Greece from then on. With regard to the remaining 50 percent, she explained there is a 50 percent chance that the right decisions have been made. Combine the two numbers and you have a 75 percent probability of success. She couldn’t have put it more coolly.

Perhaps this approach fits the institutional framework that the EU has inherited. It might have the merit of practicality, given the German Chancellor is accountable to German voters. It presupposes time. It is interesting to observe, I think, that climate change does require vision together with practical steps conscious that time is not elastic.

The Financial Times voted German Finance Minister Wolfgam Schauble, European finance minister of the year:

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