As Crisis Spreads, Europe Points Finger at America

Published on
by
the Boston Globe

As Crisis Spreads, Europe Points Finger at America

by
Jenn Abelson

Financial firms are reeling in the United Kingdom, Ireland, and the Netherlands. Iceland is on the brink of national bankruptcy. A continent that has enjoyed steady growth for years is watching it all melt away. And everyone is pointing the finger of blame across the Atlantic Ocean.(Kim Haughton/WPN for The Boston Globe)

LONDON
- Financial firms are reeling in the United Kingdom, Ireland, and the
Netherlands. Iceland is on the brink of national bankruptcy. A
continent that has enjoyed steady growth for years is watching it all
melt away.

And everyone is pointing the finger of blame across the Atlantic Ocean.

In the financial district of London, the pubs of Dublin, and on the
campuses of Holland, people are citing reckless lending in the US
mortgage market, unbridled American consumption, and a lack of
government oversight for the financial meltdown that has engulfed
Europe. Many dismiss the US bailout as an unwise and hypocritical move
that rewards the greedy bankers who caused the crisis and breaches the
ideals of the country that pioneered market-driven capitalism.

"It seems to me that the US government supports the people that
least deserve it," said Sanne Castro, 28, a student at the Delft
University of Technology in the Netherlands. "But it does prove that
even the most hard-core free-market capitalists would rather turn in
their fundamental beliefs than their money."

Europeans are watching the value of their investments plummet, their
banks collapse, their ability to borrow or get a mort gage diminish,
their currency slide, and their job security become more fragile than
ever. In short, they look just as shell-shocked as Americans.

The financial free fall in Europe is, in part, due to a shift in
economic philosophy by the major European nations, said William Keylor,
director of the International History Institute at Boston University.
European nations, seeking to emulate the formula for growth and
financial innovation that has propelled the American economy, gave up
tight control over financial markets and privatized formerly state-run
major industries, such as gas and transportation. When stock markets
were advancing and economies were growing, Europeans embraced the
changes, Keylor said. But the current crisis has caused many to have
second thoughts. Now, some are insisting that the Europeans had it
right all along, and government ownership would have limited the risks
and curbed the catastrophes now enveloping the region.

"It is hard for them to play the 'blame game' when they chose this
path freely and continued to follow it when times were good," Keylor
said.

It is clear that times have changed.

The Euro Stoxx 50 Index, which measures 50 European blue-chip
stocks, plunged 22 percent just in the past week, mirroring precipitous
drops in exchanges in London, Germany, and Paris. As the panic spreads
across oceans and national borders, many Europeans are criticizing US
leaders for not doing enough to stabilize the global market.

Even British Prime Minister Gordon Brown took a swipe at Americans
as he proposed his government's own roughly $800 billion bailout of its
banks earlier this week.

"This problem started in America with irresponsible actions and
lending by some institutions," Brown told a press conference on
Wednesday. "The global financial market has ceased to function."

The anger marks a drastic change among Europeans, who gleefully
looked on as the early stages of the US crisis seemed to show the
weaknesses of America's unfettered capitalism, according to Nigel
Gault, an economist at Global Insight in Lexington, Mass. But as the
economic storm has ripped through Europe, schadenfreude is being
replaced by anger.

The most severe excesses came from America, Gault said, but the
greed and reckless behavior weren't confined to the United States,
Gault said. Although European banks were much more conservative, their
lending policies fueled housing booms in parts of the United Kingdom,
Spain, and Ireland that are now going bust. And some European banks,
including a state-owned firm in Germany, held billions of dollars in
risky mortgage-backed securities.

"Is that America's fault for selling them toxic assets?" Gault said.
"Or Europe's fault for not more thoroughly investigating just what they
were buying?"

Some Europeans, noting the response of the Bush administration to
Wall Street's woes, have chided US leaders who have railed against the
European model of managed capitalism for suddenly embracing government
intervention in the financial sector.

"These people were the first to state that government regulation in
the market is in the long run bad for the economy, for example when it
comes to environmental laws, social welfare, and of course Wall
Street," Castro said. "And what are they doing now?"

In London, the wreckage of the US crisis looms over Canary Wharf,
the city's new financial district. A skyscraper here until recently was
the main office of Lehman Brothers. At a nearby Starbucks,
next to what used to be the headquarters of First Boston Bank, Alastair
Green, 50, an investment banker, expressed concern about the relentless
market mayhem.

"Everybody assumes there is a solution out there," Green said. "But what if there's not?"

Emily Springford, a lawyer who specializes in bankruptcy and
insolvency litigation in London, said it's obvious the United States is
the main driver behind the current upheaval here, but Europe cannot
escape blame entirely. She supports the US bailout because it was
"necessary to take action," but says British leaders are doing a better
job at protecting the people's interests.

"There is still a sense of disbelief here about how fast the crisis is spreading," Springford said.

The question for European leaders, Keylor said, is whether the crisis will cause them to reconsider American-style capitalism.

But for Phillip Massey, an information-technology worker in Dublin,
the question is not what Europe can do for itself, but whether the
American bailout of its financial institutions will mean a worldwide
recovery.

"When America sneezes, the whole world catches a cold," Massey said.
"But chicken soup and home remedies aren't going to fix this one. The
world as a whole needs treatment."

Globe correspondent Michael Goldfarb contributed to this report.

 

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