EU Commissioner for Competition Neelie Kroes, speaking last night at the Atlantic Council, called for “tough love” to be applied to failing institutions and implored governments to avoid taking shortcuts that will cause long term damage to the world economy. She also expressed hope that the United States and Europe will cooperate in solving the “first modern global recession.”
Protectionist Trap
Kroes warned that both Europe and the United States must “stay out of the protectionist trap” and “fight the temptation for short term fixes at all cost.” She dismissed the suggestion that such measures would be a temporary response to the present emergency, noting that the history of these responses is that “the only thing temporary is the promise to repeal them.”
Her view on these matters is not merely advisory. She is, as both Atlantic Council president Fred Kempe and distinguished diplomat C. Boyden Gray noted in introducing her, easily the most powerful member of the European Commission because of her role in setting the rules of intra-European commerce. Additionally, as she herself noted, she has the luxury of being able to look at the big picture while ignoring pubic pressure for easy solutions. (She stressed, however, that she views taxpayers as her “shareholders” and does everything with their interests in mind.)
Free Trade but Not Autopilot
A former economics professor, business school president, and member of numerous corporate boards, she professes to be an ardent free trader and strong believer in the markets, including the idea that businesses face the risks of failure. However, she says, “special times call for special measures” and governments must step in to clean up the messes created by businessmen who took unwise gambles.
Asked whether “restructuring” could include breakups, she allowed that “all options are open.” She stressed, however, that deciding the best approaches could not happen until full transparency— opening all the books at all the affected institutions — was acheived.
The key, however, is not simply to provide taxpayer money to resume business as usual. Kroes proclaimed that “Too big to fail does not mean too big to restructure.” There must be “better regulation” and “tighter supervision.” The financial sector needs drastic reform and government must ensure that banks and other industries seeking relief have a long term plan for success. The end results will be “free markets” but “not autopilot.”
New Rules
We must rebuild the system with long term sustainability in mind, avoiding quick fixes. Avoiding further meltdown is not enough, she says; rather, we must revise the rules to avoid this happening again.
Most importantly, as she emphasized repeatedly during the talk, was the need for “full transparency,” especially in the financial sector, in order to “restore confidence.” Not only must the public have confidence in banks and other institutions but so must other banks. She noted that in private conversations with bank executives, almost all thought their own banks were in excellent shape but that none thought the same of their competitors.
Asked directly by Atlantic Council vice president and director of transatlantic programs Frances Burwell whether the “Anglo-Saxon model is dead,” Kroes demurred. She insisted that “the system is okay, implementation is the problem” and that there is a need to correct bad behavior through regulation.
Transatlantic Approach
Asked by Gray whether there has been sufficient coordination on financial system restructuring between the EU and the US government, Kroes answered, flatly, “No.” She added that, “We could do quite a bit more” and that “I look forward to the G20” meetings in London next week.
She noted that, while this crisis may have started on Wall Street, it’s an international one that we should work together to solve. Even in Europe, she said, solutions will need to be tailor-made to solve unique problems in individual countries so it’s quite natural that the United States and the EU will not agree on all matters. It is important, however, to work together and share information to avoid stepping on one another’s programs out of ignorance.
James Joyner is managing editor of the Atlantic Council.