Of Sins and Sinners: What Europe Needs

The coordinated action taken by the Federal Reserve and other central banks Wednesday to stabilize the European Union's finances gives the eurozone some breathing room. The six central banks agreed to reduce the cost of borrowing dollars for foreign banks after credit began drying up. The action was necessary and should head off a panic.

For now.

But there is much more that needs to be done to address Europe's sovereign debt problem. Germany is the key player. But will the Germans — will anyone in Europe — act quickly enough to head off a panic after 18 months of dawdling that threatens political stability and has sent economic ripples around the globe?

Last year alone, the EU region accounted for $3.7 billion in exports from Wisconsin alone, according to the Wisconsin Economic Development Corp. The 27 countries of the union made up 20 percent of the state's business abroad. There is ample reason for any American company doing business there to be worried.

If Europe cannot find its footing, the ensuing financial panic might trigger a recession across the continent. A new downturn would depress the market for American-made products and put jobs here at risk. That scenario must be avoided.

But Europe now resembles the American colonies before the Constitution was adopted.

The colonies operated from 1781 until 1789 under a loose union spelled out in the Articles of Confederation. That weak federal government meant that individual states could call the shots — and all too often they did, to the detriment of the commonweal.

There is little appetite for full political unity in Europe, but by now there should be plenty of appetite for a more fully integrated fiscal union with stricter rules on debt and deficits. Germany is resisting a growing call for the continent's biggest and most successful economy to rescue the laggards — especially Greece and Italy. Both those countries spent beyond their means and dug their own deep holes, sins that were laid bare by the Great Recession.

Germany should chip in; it must. But in exchange for fiscal relief, EU nations should have to live by tougher rules that force them to get their financial houses in order.

The alternative — a free ride offered by a bailout — encourages bad behavior down the road. The Germans are wise to resist a bailout without some new rules, but they need to move quickly or risk the contagion spreading.

There are other options. The EU could break up. But that would risk a long and deep recession at a time when the EU — and the rest of the world, including our own region — can ill afford it.

Better to offer grace to the sinners and require better behavior in the future.

REPRINTED FROM THE MILWAUKEE JOURNAL SENTINEL

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