Europe’s Piecemeal Failure

By ALISTAIR DARLING
NYT

London

WHEN I look at events in Europe today, with Ireland getting bailed out and talk of crises brewing elsewhere on the continent, I am reminded of the weeks leading up to the banking crisis in 2008. As the credit crunch began and banks found it increasingly difficult to get access to funding, policy makers faced a choice: deal with the problem in a piecemeal way, or address the root causes immediately.

For too long many policy makers opted to fudge their approach; they dealt with the problem bank by bank and refused to recognize the system’s fundamental flaws.

As a result, we saw Lehman Brothers go bankrupt, Bear Stearns bought up in a fire sale and a major British bank come within hours of collapse.

During that summer I realized that unless we put a firewall in place to prevent the crisis from spreading, we would face a catastrophe in the banking sector and the wider economy. That’s why I took the controversial step of injecting billions of pounds into the banking system to stabilize it. By tackling the fundamental problem, the lack of capital in banks, we stopped a meltdown. It was drastic action, but I have no doubt that it worked.

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