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October 12th, 2008
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Secure so far, but no time for complacency


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October 8th, 2008 issue

It’s probably too early to congratulate Czech officials for the country’s seeming imperviousness to the global financial crisis. Anything can happen, and as the past two weeks have demonstrated, happen fast. But for once, the country’s foot-dragging on adopting the euro and plugging into the larger European Union economic network looks like a smart move.

As markets plummeted and presidents and finance ministers across Europe scrambled over the past week to guarantee bank deposits and bail out failing companies, it became increasingly clear that the EU’s economic integration has outpaced its political structures and regulatory mechanisms. While the European Central Bank has acted aggressively, the bulk of the response has been on a country-by-country basis, exposing the fault lines in the EU’s financial framework.
To be fair, the economic landscape in Europe has changed dramatically over the past few years, particularly in the private banking sector. Giants like HSBC and Deutsche Bank have built sprawling operations that not only cross borders but span continents. It all looks impressive until one leg of the operation folds, particularly if that leg is in the United States.
One early lesson of the rescue efforts is that throwing money at the problem won’t solve it. The $700 billion bailout program finally approved by the U.S. Congress late last week was aimed at calming world markets, which sank like stones Monday morning. Closer to home, the desperate attempts to prop up Fortis and Hypo showed that European economies share some of the same weaknesses as America’s.
There’s been some smugness on the part of European leaders in blaming American hubris and runaway capitalism for triggering the crisis. That’s true, but this is no time for finger-pointing. The other lesson of the current debacle is that when it comes to the global economy, everything is connected — a fact that seems obvious, but apparently has not been part of financial managers’ calculations in Europe.
So an integrated approach is critical, not just on the Continent but worldwide. And the Czech Republic, for all its strengths and good standing now, should be part of it.


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