BERKELEY – There is no shortage of talk nowadays about Europe’s deficits and the need to correct them. Critics point to governments’ gaping budget deficits. They cite the southern European countries’ chronic external deficits. They highlight the eurozone’s institutional deficits – a single currency and a central bank but none of the other elements of a well-functioning monetary union.
Of course, in all of these areas, the critics have a point. But none of these is the deficit that really matters. The deficit that prevents Europe from drawing a line under its crisis is a deficit of trust.
First, there is deficient trust between national leaders and their publics. We saw this most visibly in the person of former Italian Prime Minister Silvio Berlusconi, who fortunately has been kicked to the sidelines of the political scene. But even the most stalwart European leaders have lost their followers’ trust by baldly saying one thing today and the opposite tomorrow.
At the end of February, for example, German Chancellor Angela Merkel made a spectacle insisting that no bigger financial firewall was needed to protect other eurozone countries from a disorderly Greek default. Not one more euro of German taxpayer money, she vowed, would be contributed for this purpose. Yet everyone knew that once the Bundestag voted for the latest Greek rescue and enough time passed to acknowledge reality gracefully, Merkel would reverse course and argue that the eurozone needed a bigger firewall after all.