"Financial markets are driving the world towards another Great Depression with incalculable political consequences. The authorities, particularly in Europe, have lost control of the situation. They need to regain control and they need to do so now."
So says George Soros in this morning's FT. He proposes a 3-step solution:
First, the governments of the eurozone must agree in principle on a new treaty creating a common treasury for the eurozone. In the meantime, the major banks must be put under European Central Bank direction in return for a temporary guarantee and permanent recapitalisation. The ECB would direct the banks to maintain their credit lines and outstanding loans, while closely monitoring risks taken for their own accounts. Third, the ECB would enable countries such as Italy and Spain to temporarily refinance their debt at a very low cost. These steps would calm the markets and give Europe time to develop a growth strategy, without which the debt problem cannot be solved.
Of course there may be bold and creative solutions to this crisis out there, but what are the chances that politicians everywhere are going to find themselves hamstrung by their parties, their electorates and by the limitations and fundamentally mal-coordinated nature of national and international institutions? Who or what is ever going to regain control?
I'd like to think that 'behind closed doors' the people with the power to act already have a handle on this, but then I am, in spite of the tenor of this series of posts, some sort of optimist.