BERLIN – On the weekend of May 7-9, the European Union gazed into the abyss of historical failure. The fate of the euro was at stake and with it European unification as a whole. Not since before the signing of the Treaty of Rome in 1957 had Europe been in such grave political danger. On the surface, the matter at hand was the financial stabilization of Greece and of the Europe’s common currency, but the real title of the play was “Saving the Banks, Part II.”
If Greece had defaulted, not only would Portugal, Spain, and other weaker eurozone economies have been threatened, but Europe would have faced a run on its securities. That, in turn, would have triggered the collapse of supposedly “too big to fail” banks and insurance companies, not just in Europe, but worldwide.
When the heads of the EU’s member states met in Brussels to deal with the Greek crisis, the interbank market, which is decisive for the liquidity of financial institutions, had started to freeze, just like after the collapse of Lehmann Brothers in September 2008. The world financial system again stood at the edge of a precipice. Only after joining forces in providing a €750 billion bailout package, did the eurozone’s member states and the IMF prevent another systemic crash.
But how many bailouts will the people of the Western democracies tolerate before the crisis of the global financial system turns into a crisis of Western democracy? The answer is clear: not many more.