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Politics : President Barack Obama -- Ignore unavailable to you. Want to Upgrade?

To: John Vosilla who wrote (114484)	6/1/2012 1:19:18 AM
From: tejek	Read Replies (1) \| Respond to of 149317

A Terse Warning for Euro States: Do Something Now By JACK EWING Published: May 31, 2012 153 Comments FRANKFURT — Mario Draghi, the European Central Bank president who pulled the Continent back from the financial brink late last year, is facing an even more daunting challenge as the debt crisis in Spain deepens. But this time, he may have a harder time fashioning a rescue plan that will work. In a warning to political leaders, Mr. Draghi told members of the European Parliament on Thursday that the central bank is reaching the limits of its powers and now it is up to politicians to move quickly and decisively because the survival of the euro, the Continent’s common currency, is at stake. The structure of the currency union, he said, had become “unsustainable unless further steps are undertaken.” The note of frustration and urgency in Mr. Draghi’s voice was a sharp contrast to six months ago, when he took over as central bank president and eased the crisis with what was considered a bold easy-money plan that extended some $1.3 trillion in low-interest loans to large banks throughout Europe to restore confidence. But the success of that plan has been short-lived, underscoring the far more limited authority he has compared with what the Federal Reserve chairman, Ben S. Bernanke, had at the height of the financial crisis in 2008. And the few options at Mr. Draghi’s disposal help explain why pessimism is growing about Europe’s ability to contain its crisis. Europe’s problem, much like in the United States in 2008, is that its financial system is fraying. Troubled countries and weakened banks alike have difficulty borrowing money to sustain their operations as nervous investors pull back from risk. The solution to the 2008 crisis, orchestrated by Mr. Bernanke along with the Treasury secretary, Henry M. Paulson Jr., was to flood the banking system with hundreds of billions of dollars while buttressing the system with many other measures to calm investors. Mr. Paulson famously got down on bended knee to persuade reluctant and divided Congressional leaders to approve the plan. It wasn’t an easy sell, but without the infusion of cash, the financial crisis in the United States would probably have been much worse. Europe similarly needs a robust rescue plan, but Mr. Draghi has to overcome even more obstacles than his American counterparts because Europe has many different countries with many different interests, issues and priorities. Mr. Draghi, a dignified Italian and an economist by training, is not the type to be a supplicant like Mr. Paulson, a former Wall Street banker, was in 2008. But even if he were, whom would he beseech for action? At least Mr. Paulson, as head of a national treasury, knew whom to convince. The euro zone has 17 heads of government and 17 parliaments, not to mention the relatively powerless European Union executive branch and the European Parliament that was Mr. Draghi’s audience Thursday. In what may have been his most blunt criticism of political leaders since he took office in November, Mr. Draghi said that half-measures and delays had made the euro zone crisis worse. He said the leaders needed to decide what kind of euro zone they wanted, and fast. “Dispel this fog,” he said. Mr. Draghi is among the most powerful figures in the euro zone drama, as head of the only institution with both huge financial resources and an ability to make decisions without a laborious political process. Government leaders, wary of the political cost, have looked time and again to the central bank to deliver relief. But Mr. Draghi said Thursday that the crisis now demanded solutions that could only come from political leaders — like creation of a Europe-wide deposit insurance program. Such a system, like deposit insurance in the United States, would reassure bank customers that their money was equally safe in any euro zone country, and that might prevent the sort of money flight that is now sapping Spain. He also backed calls by European Commission leaders on Wednesday for a more unified banking system. But he has no authority to affect change, as only the lawmakers of the euro zone countries could together create such a deposit insurance system. “From the E.C.B.’s perspective, the next iteration of crisis management largely falls on the shoulders of member states,” said Mujtaba Rahman, a euro zone analyst at the Eurasia Group. “Arguably all the incremental plays have been exhausted.” 1 2 Next Page » nytimes.com