On the fiscal side, the comparison with the United States is striking. Many economists, myself included, have argued that the Obama administration’s stimulus plan is too small, given the depth of the crisis. But America’s actions dwarf anything the Europeans are doing.
The difference in monetary policy is equally striking. The European Central Bank has been far less proactive than the Federal Reserve; it has been slow to cut interest rates (it actually raised rates last July), and it has shied away from any strong measures to unfreeze credit markets.
....Why is Europe falling short? Poor leadership is part of the story. European banking officials, who completely missed the depth of the crisis, still seem weirdly complacent. And to hear anything in America comparable to the know-nothing diatribes of Germany’s finance minister you have to listen to, well, Republicans.
There's a third side to this too: fixing the banking system. I'm not quite sure what's going on here, though. Back in September and October we heard a lot about how European banks were even more highly leveraged than American banks: leverage of 40:1 or even 60:1 wasn't uncommon among some of Europe's largest banks. This suggested that their banks were headed for even worse trouble than ours and might very well need even bigger bailouts.
But since then, nothing. Britain's banks are falling like flies, and Eastern Europe is in big trouble, but I've been reading very little about the big Western European banks that compares with the drumbeat of calls for nationalizing Citigroup or Bank of America. (Though here's a recent example of just that.) Is this because European banks, despite their astronomical leverage, are in better shape than American banks? Or is it because European regulators have their heads in the sand and don't want to deal seriously with their bad banks any more than ours do?
I'm not sure, and I'm going to dig around a bit and see if I can get up to speed on this. But any way you look at it, this needs to be on the agenda too.