Heed warnings on euro collapse
Will Sunday, September 25, 2011, be remembered as the day the world's leaders began to tackle the global financial crisis in earnest? It certainly deserves to be remembered as the day they pointed to its intensity and agreed, if not on how to cure it, at least on where a cure must begin.
The International Monetary Fund-World Bank meeting in Washington resounded with angry criticisms, warnings and pointings of fingers.
They differed from previous expressions of exasperation by the United States, China and other countries in that the fingers all pointed in the same direction.
US Treasury Secretary Timothy Geithner said that the European Central Bank "must take a more central role".
The head of the IMF European department, Antonio Borges, asserted that the ECB "is the only agent that can really scare the markets". More dramatically, the chief of Brazil's Central Bank called for radical action and advised: "Do it quickly and with overwhelming force."
Do exactly what? The proposal in the air, if not actually on the table, centres on the parsimony of the ECB and major European governments in bailing out the countries most critically affected by the debt crisis -- Ireland, Greece and Portugal -- and easing the difficulties of others by buying Spanish and Italian government bonds.
The funds at present available to the European Financial Stability Facility -- €440bn -- are manifestly inadequate.
It has therefore been suggested that the European Stability Mechanism, due to succeed the EFSF in 2013, should have at its disposal a staggering $3 trillion. It should also come into operation a year earlier than planned.
In short, this exercise in "thinking the unthinkable" proposes that the ECB should print enough money to fight off any speculation against the euro.
It would mean a huge inflationary risk. It would also risk a heavier burden on eurozone taxpayers. But it might save the whole of Europe -- and the rest of the world -- from something much worse, a complete collapse and a long depression to equal that of the 1930s.
In the latter event, Ireland, whose chief economic hope lies in an export-led recovery, would find itself trying to sell into paralysed markets. No doubt Finance Minister Michael Noonan had that in mind in Washington yesterday when he hailed Ireland's return to "significant levels of growth, albeit with sharply divergent sectoral trends".
The representatives of Greece and Portugal were more subdued, though they showed no signs of alarm.
But they, and we, will have real cause for alarm if the world fails to heed the warnings of Washington.