For more than two years, European leaders have dithered. They have failed to address decisively the escalating euro-area sovereign debt crises. In the process, the European economy has been damaged and the future of the entire European integration project, which began more than 60 years ago, has been called into question. Moreover, the failure of Europe to address its problems has inflicted $1 trillion in real economic costs on the world economy. Now Europe is asking the rest of the world for a substantial increase in financial assistance via the International Monetary Fund (IMF) to help erect a European financial safety net. US leaders are understandably reluctant to endorse this request, but they need to show more public leadership on this issue.
In an op-ed in the New York Times posted online on February 14, I have outlined four conditions that the Europeans should meet before the rest of the world endorses the European request. The conditions apply to the euro area as a whole, to its fiscal policies, to the European Central Bank’s monetary policy, to the size of the European component of the needed financial safety net, and to the terms of Europe lending to itself through the IMF. If these conditions are met, the United States should actively support IMF managing director Christine Lagarde’s effort to raise $500 billion for the IMF from Europe and the rest of the world.