Goldmark: Fear in Europe grows more intense

Want to meet some worried people? Travel through Europe and talk to bankers and businesspeople.

I did that last week and found widespread fear and uncertainty about the future of the European Union.

Financial contagion has spread from the small countries, like Greece, Ireland and Portugal, to big ones, like Spain and Italy. The size of the bailouts that may be needed to make sure those countries neither collapse nor default and can finance their day-to-day operations is far larger than anything provided in bailouts over the past two years of creeping Euro-crisis.

Too many countries are running big deficits. Too many big European banks have weak balance sheets and shaky loans on their books. The government debt of some countries is too high compared to their gross domestic products -- many of them owe more than they spend in a year. And many of them already have high and growing unemployment rates, which makes further budget cuts extremely difficult.

To fix it there's just a skimpy patchwork of tools: a European Central Bank designed primarily to fight inflation, not create jobs or even regulate the financial sector; no Europewide body that can reshape budgets for countries that use the common currency -- although there is now a mechanism through which the European Commission can impose fines on countries that violate budget guidelines; and certainly no mechanism for imposing or even legally approving a eurowide workout that would reschedule debt, allow revaluation of the euro, and require adjustment in entitlement and benefit programs to fit revenue capacity.

The European Investment Bank has some of what it needs to design and implement a "growth" program similar to the stimulus program adopted in the United States after the crash of 2008. But it would need a cash equity infusion to serve as a base for expanded lending -- and where would that come from?

No wonder the markets are jittery.

Europe has a central secretariat, not a central government. The secretariat can issue implementing regulations for existing policies, and it can monitor and, within limits, take steps to enforce earlier decisions. But it cannot fashion the bold new policies needed to respond to a crisis. That can only be done by the heads of Europe's national governments acting together. And in serious matters those presidents and prime ministers -- hold your breath -- must act by unanimous consent. It's as if in the United States, major economic issues required the unanimous consent of the governors of all 50 states.

"Dispel the fog," pleaded Mario Draghi, head of the European Central Bank, to Europe's leaders recently. This was a highly unusual and somewhat desperate comment, coming from the mouth of a central banker -- a breed usually known for taciturnity and Delphic pronouncements, not impatience or exasperation.

This all matters to those of us who live on this side of the Atlantic. A major setback in Europe, the world's largest market, plus spasms in its banking system would put a major drag on our own wobbly economic recovery.

The best thing to do when you run into big financial trouble is to strip the pieces of the puzzle down, resize your obligations and rebuild your capacity. And once that's done, focus on growing rather than bailing. That's what New York City did in 1975 and General Motors did in 2009. But Europe has no legal framework that would permit that.

Germany is reportedly willing to consider refinancing backed by Europe as a whole and accompanied by tools for reworking national budgets. Let's hope this blossoms quickly into a plan for wholesale reorganization. Time is running out for Europe.

Peter Goldmark, a former budget director of New York State and former publisher of the International Herald Tribune, is a member of the State Budget Crisis Task Force.