U.S. officials quickly poured trillions of dollars into an array of programs to counter the country’s financial crisis in 2008 and 2009, often breaking the boundaries of conventional policy. By 2010, less than three years after the first hints of trouble at the Bear Stearns investment company, the economy was growing again.
By contrast, European leaders have taken a cautious, incremental approach to their financial crisis, and now, as the euro zone completes the third year of economic travail, a turnaround is nowhere in sight. Europe’s economy has stalled, threatening to become a prolonged drag on the wider world economy.
Economic crisis management in the U.S. and Europe
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Decisions made more than two years ago, including the establishment of a half-trillion-dollar bailout fund, have yet to be carried out as political and legal wrangling continue. Basic choices about the structure of the currency union have yet to be made, as advocates for centralized control over bank regulation and government tax and spending policies clash with skeptics who fear the loss of sovereignty in the euro zone’s 17 member nations. Major resources, including those of the European Central Bank, remain at least partially sidelined as officials continue to debate the guidelines for using that money to help rescue flagging governments.
Talks this month and next may provide another increment of progress. A meeting of the ECB on Thursday may give insight into the central bank’s plans, for example, and a German court ruling expected next week may move the bailout fund a step closer to reality.
But there is little expectation of a decisive turnaround, and Europe’s agenda for the coming weeks sounds disturbingly like its agenda from the first days of the crisis: whether a bailout fund complies with European law; how much the ECB should do to help euro-zone governments; whether the Spanish and Italian governments can avoid a bailout; whether Greece can make the deficit cuts needed to keep its troubled rescue program on track or perhaps be forced to drop the euro.
“It is very hard to feel at all confident about where this is headed,” said Jared Bernstein, a former Obama administration economic adviser who is a senior fellow at the Center on Budget and Policy Priorities.
In the United States, the scope and scale of the different programs proved critical to restoring confidence. The Fed’s Term Asset-Backed Securities Loan Facility quickly pulled investors back to the markets for consumer and other loans with the promise of virtually open-ended financing. When banks stumbled, even healthy ones were forced to take a fast injection of federal bailout loans to build faith that the system had the funds to operate.
Despite years of diplomacy in Europe and a series of bailouts for struggling governments, the region’s response to the mounting debt crisis has failed to meet its most important goal of restoring confidence in the future of the euro zone. The efforts, short on money and tangled in conditions, have failed to convince investors and the rest of the world that euro-zone nations, whether small ones such as Greece or large ones such as Spain, will be able to pay their bills and will not decide to drop the currency.