One of the world's most respected finance ministers gave me his take on the eurocrisis in the wake of this past weekend's IMF meetings in Washington in a single word: "Bleak." Moments, later, in a separate conversation, frustration showed on the face of one of the IMF's top officials. He muttered his exasperation with the attitudes of top eurocrats, particularly those "with German accents." They failed to recognize, in his view, that their monomaniacal focus on austerity was sowing the seeds of its own political destruction. The people of southern Europe will only be squeezed so hard, he suggested, before they reject the deals, pending bargains, and economic prescriptions that Europe's northern powers are counting on to save the eurozone.
At a party thrown by JPMorgan, former U.S. Federal Reserve Chairman Alan Greenspan reportedly opined that the European monetary experiment was doomed from the start due to the divergent views and national characters of the disparate countries participating in the venture.
Then, over the weekend, the Dutch government, one of Germany's most important allies in making the case for austerity, fell. And in France, the first round of the presidential election both presaged the almost certain ultimate victory of Socialist François Hollande over incumbent Nicolas Sarkozy and, more ominously, showed the strength of Marine Le Pen's far-right National Front party.
As the past week has shown, Europe's crisis lives on, seemingly more fueled than ended by high-profile "solutions" that have provided more questions than answers. In fact, the European financial crisis has been a case study in compounded mismanagement.
While the expectations of most of those with whom I spoke who participated in this weekend's discussions was that the Europeans have sufficient tools to avert catastrophe for the foreseeable future, there was also a clear sense that risks are nonetheless growing. Recession and the pain of belt-tightening would likely produce populist backlash on both the left and the right. Long-term recession in the south seemed certain. And if the malaise triggered bank failures, it might be every man for himself: Not all governments would pull together in bailing out financial institutions headquartered outside their immediate borders. Further, if a failure triggered a problem with a big American bank such as Morgan Stanley, the most often whispered victim, the bet was that neither the U.S. president nor Congress would have the appetite for an election-year bailout. "They'd let it fail," said a former top Obama administration official, expressing the view that this is what would appeal to the public at large.
For a moment, it almost made one wish for the good old days of George W. Bush. The ex-president left behind a wake of problems worldwide, notably associated with his administration's misguided prosecution of its "war on terror." But when the markets teetered late in 2008, he and his Treasury secretary, Hank Paulson, stepped in and not only acted relatively quickly but marshaled the kind of collective action from the U.S. Congress that the body seems more or less incapable of unless it has a gun to its head. My guess is that in the future, the picture of the Bush presidency is going to moderate considerably, and his team's imperfect but ultimately decisive and fairly effective intervention in the markets during his last days in office will be counted to his credit.