The American predilection for bailout plans conflicts with the European Union’s respect for macro-economic balances and regulation. This is a debate that concerns the entire global economy.

With the approach of the G20 summit, the divergent points of view that exist between the USA and Europe and, more specifically, the European Union, are beginning to become more and more apparent. In the United States, critics, including Nobel Prize laureate for economics, Paul Krugman, are becoming increasingly vocal about Europe’s weak economic rescue plans. They also criticise the lack of coherence of the programmes that have been adopted haphazardly by European nations primarily preoccupied with their financial stability and seemingly absentminded about the importance of global solidarity during these tough times.

The gravest observation is that the anti-crisis policies are chronically void of real coordination and encourage turning to potentially damaging protectionist measures. The French are a clear example of this trend.

For American economists, and their colleagues of Great Britain and the IMF, the severity of the current recession, which could become a prolonged depression, requires measures that are as determined as those adopted by the Obama administration. Anglo-Saxon experts believe that the European social stabilisation mechanisms will not suffice to make up for the alarming contraction that is occurring among households and companies. Worth 200 billion euros, the European plans, which are largely driven by tax breaks, are considered to be grossly inadequate in light of the demands of today’s economic context that needs a more appropriate response to these exceptional circumstances. The problem is that European governments are reluctant to go further into debt. They, and particularly German officials, mean to avoid excessive public spending. But the gravest observation is that the anti-crisis policies are chronically void of real coordination and encourage turning to potentially damaging protectionist measures. The French are a clear example of this trend.

The pugnacious opposition of the Franco-German alliance

The contradictions within the European Union and the difference of approach relative to the US are highlighted by the IMF’s pessimistic forecasts. In remarks issued at the meeting of the G20 finance ministers which ran from the 13th to the 14th March, the IMF concluded that the recession would be even worse than initially expected and warned against the dangerous consequences of the delayed implementation of economic policies that fail to measure up to the magnitude of the crisis. The IMF’s comments echo the Bank of England’s negative assessment of the overall economic situation. In its quarterly report published on 16th March, the economists of Threadneedle Street caution against a credit freeze, particularly between banks, and its effects on the present recession.

Detractors and those in favour of a larger European economic rescue policy are colliding with the pugnacious opposition of the Franco-German alliance, which was resurrected for the occasion. At the preparatory meeting held on Friday in Brussels, the European Union’s economic leaders put aside the question of an economic rescue plan, opting instead to focus on the financial aspect of the crisis and the new regulatory forms developing within the banking system. With tax havens, the Larosière report (named after a former French head of the IMF) on banking regulation monopolised the attention of the government heads and financial ministers meeting at the Belgian capital. Beyond regulatory matters, the concrete measures adopted in Brussels concern aid to Eastern European countries to the tune of 50 billion euros, and the 75-billion euro reinforcement of the IMF’s financial capacity.

African economists believe Obama is right

Certainly, the implementation of the measures recommended by Jacques de Larosière will clearly lead to more stringent control of banks and will help to prevent the creation of another financial bubble. But the Hungarians and the Austrians believe that Europe’s efforts are insufficient to address the crisis. Austria is particularly anxious that its banks in these countries make up 70% of its GDP.

The debate is being closely watched by African economists who note that the dysfunctional operations of the industrialised nations hold catastrophic implications for emerging countries who had nothing to do with the present economic disaster. The virtual halt in raw material exports upon which many African nations depend is a disturbing indicator. Public aid does not make up for the global slump in demand. African experts therefore support the position of the Obama administration.