Europe’s leadership deficit

By Felix Salmon
November 8, 2011

photo.JPGSometimes the conventions of dead-tree newspapers are much more effective at getting a story across than the same article on a website. Landon Thomas’s 1,100-word piece on George Papandreou is a case in point: you can work through the whole thing, or you can glance at it in the paper, where a pair of sub-heads do the job rather effectively. “Prime Minister Lacked Forcefulness” says one; the other tells us that “a leader proved unable to connect with constituents.”

Meanwhile, a similar prime ministerial ousting seems to be taking place in Italy, where the highly forceful Silvio Berlusconi — a man who connects viscerally with his constituents — looks as though he might get pushed aside in the national interest much as Papandreou was.

What we’re seeing here is the crucial role that national leadership has to play in sovereign debt crises. There have been questions over Italy for a while, but conventional wisdom has generally had it as being either the third or the fourth of the PIGS dominoes to fall. Instead, it now looks as though it’s falling so fast it could even, conceivably, overtake Greece.

The amorphous blob known as the “international community” — as represented by the likes of the ECB, the IMF, and even the US Treasury — is playing a dangerously technocratic game in Italy, largely oblivious to the enormous tail risks involved. The general idea seems to be that Berlusconi is a massive liability, but that underneath it all, the fiscal program he’s being forced to agree to is a good one. Kick him out, install a more professional technocrat, and all should be fine.

But just look at Greece, and the fate of Papandreou — the very model of a modern professional technocrat. When the populace is revolting and the government is imposing tough choices on its citizens, you need someone in charge who can do more than navigate committees and corridors in Brussels and Washington. In fact, that kind of thing is best delegated to finance ministers and central bank governors. The leader of the country has a much more important job — which is to lead the country.

I’m thinking here of Brazil, which managed to come out of its own debt crisis, in 2001, thanks to some very smart and able technocrats at the finance ministry and central bank. But — and this is crucial — it was also led by a popular and charismatic leader, who managed to persuade the country that he was acting in its best interests. There are many people who deserve credit for the fact that Brazil avoided default in 2001-2, but Lula — an uneducated union leader without a technocratic bone in his body — has to be at the top of the list.

At the same time, and crucially, Lula had the full support of the international community in everything he was doing. At no point was any entity as powerful as the ECB or the German government using sticks, threatening to force him into default if he didn’t do what they wanted. Everybody understood that their interests were aligned, and that it would be best for all concerned if they tried as hard as possible to work with rather than against each other.

And this is why the current Europe crisis is looking so bad. Interests aren’t aligned at all: everybody wants to push the costs of the crisis onto someone else. And in the past couple of weeks, things have gotten significantly worse: the northerners have started quite explicitly threatening the southerners with a lack of cooperation and the consequent inevitable default if they don’t pick up their game.

This is a strategy which is almost certain to end badly. It can work in the short term — but only in the very short term. Because if the markets think there’s a serious risk that the Eurozone powers might let Italy fall, then they will simply walk away. And suddenly the entire burden of financing Italy’s budget deficit for the foreseeable future will fall on the ECB, Germany, and the rest. Which is a situation which is simply unsustainable.

Or, to put it another way: Europe has a leadership problem raised to the 17th power. One weak or bad leader — Papandreou, or Berlusconi — can suffice to hole the euro project below the waterline. But parachute in the best of all possible leaders into Greece and Italy, and you still have a problem. There’s Germany, and France, and the ECB, and even the likes of David Cameron and Tim Geithner meddling where they’re not really welcome. And the only way that this crisis can work itself out effectively is if they all agree on the same solution.

But the essence of leadership is, well, leading. It’s not simply agreeing to do the same thing that the other 16 guys want to do. In Brazil, Lula set the course, and the international community — as well as his own technocrats — implemented it and made sure it worked. There was no doubt who was in charge. In Europe, no one has a clue who’s in charge, and 17 different people all want to set the course. Which means, I fear, that it’s doomed.

Comments
5 comments so far

I shall not dispute your stylistic points, but I find it a pretty risible suggestion that Papandreou will be more disconnected from “his constituents” than any successor will soon turn out to be. The current Finance minister is at least as beholden to foreign/banking interests, while ND is the party that did the most to get Greece into this mess. Basically, their party system is as defunct as the US system is.

The problems facing the Eurozone are fairly nicely summarized by the graphs in this link: (http://www.nakedcapitalism.com/2011/11/ the-eurozone-vendor-financing-scheme.htm l); and it should be obvious that nothing is being done to address those imbalances. Simultaneously, focusing on a (putative) lack of “forcefulness” is only to distract from the underlying issue: namely that there is no way for Greece to reinvent itself that will allow it to become a functioning (let alone “competitive”) member of the Eurozone.

Posted by Foppe | Report as abusive

I’m not sure about your history here… Lula was elected president at the end of 2002. Much (though not all… obviously Argentina played a big role) of Brazil’s problems before that were caused by the market freaking out about the likelihood of him becoming president. All he did was continue the path of his predecessor, the uber-technocratic FHC, and that calmed everyone down.

Posted by right | Report as abusive

Or to be brief about it, too many cooks spoil the broth.

Posted by Chris08 | Report as abusive

Surely part of the reason Lula was able to succeed was precisely that he had credibility with the populist left, and maintained it by continuing to invest in some social-democratic institutions. The right’s hostility to anything that gives a hand up to the working poor is self-defeating.

Posted by Auros | Report as abusive

“Europe’s” leadership deficit? What about ours? Not only do we have a bigger leadership deficit, but we have bigger trade and budget deficits, too. Do lots of deficits make us a deficient nation? If we’re a deficient nation, can we still be considered great, just because we have low taxes? And if that’s the only criteria for greatness, isn’t Greece great also, as I hear they have low taxes?

Posted by KenG_CA | Report as abusive
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