Atlantic divides attitudes to financial reform

ARE the world’s financial institutions to be or not to be?

Perhaps this is the question across both sides of the Atlantic. But the approach to finding this out is being undertaken very differently in the US than in Europe.

In the US, the strength of institutions is being tested by the blowing of political bluster, the rhetoric attack of the country’s right wing. Can a minority can gain the political power to willfully smash what has been established?

In Europe, it is a question of whether a group of fires can be extinguished before they join into one big conflagration and so too late. Can a disparate group of leaders and authorities somehow act together to save the eurozone?

The candidates hoping for the nomination of the Republican party to contest this year’s presidential election seem to be driven to surpass each other in their extreme disdain toward government, regulations and institutions.

An example is candidate Rick Perry, the governor of Texas. Over the recent past, his words and behaviour have continually encouraged a contempt for financial institutions and for central government in general. This has extended to even suggesting it might be appropriate for Texas to secede from the US. Social security, the US pension system, has been alternatively described as a Ponzi scheme and a big lie.

All Republican candidates agree recent US legislation intended to enhance regulation of banking and financial markets should be repealed. Newt Gingrich has suggested the architects of the Dodd Frank Wall Street Reform and Consumer Protection Act, Representative Barney Frank and former Senator Chris Dodd, should be jailed.

The best-selling fiction writer Rita Mae Brown has suggested “the statistics on sanity are that one out of every four Americans are suffering from some form of mental illness. Think of your three best friends. If they’re okay, then it’s you.”

Current polling bears this out, with about half the US population being active in politics, with half of those being Republican.

The European situation seems quite different. While the US faces the possibility of higher borrowing costs in the future, many countries in Europe face them today. While many in the US see a future in the past, in the gilded age of no financial regulations, no environmental protections or union rights, Europeans are now seeing the foundations of the eurozone going up in smoke despite a majority preference that they do not.

Nero fiddling as Rome burns — except its not clear who Nero is. New players arrive — centre-right governments in Ireland, Portugal and Spain, unelected economists Mario Monte and Lucas Papademos in Italy and Greece respectively. Yet individual countries cannot solve their problem of higher borrowing costs on their own.

Will the ECB offer an expansionary policy? Is Angela Merkel able to reconcile support for Europe with the concerns of the German electorate? Can a proposed closer fiscal coordination be enforced? Does this even address the problem? The cast is large without clear leadership.

To be fair, the situation in the US, with a Congress divided over partisan lines, is at least as inept as Europe’s. But dissimilarly the US is looking toward a long-term fiscal problem rather than a short-term emergency, and so there is time to form childish proposals. In Europe there is little time left.

There are other strange parallels. While some in the US are fancifully advocating swapping a floating dollar for gold, Europeans are desperately trying to preserve its common currency.

While the US right-wing is ostentatiously steadfast in its resolution to wreck havoc, EU leaders appear as indecisive as Hamlet to avert a devastating crisis.

In the US so many do not value what they have. Europeans are unable to save what they value. While much of the US is looking back to a time and place that is exists only in fanciful minds, Europe is facing an unknown future that will sadly be all too real.

John Goodell is an assistant professor of finance at the University of Akron in Ohio