Goldmark: Taming the euro beast

Propelled by the hot air of yet another high-level conference, the leaky vessel of the European Union continues its tortured voyage. Like some creaky plague ship creeping across the sea -- and God forbid it manages to traverse the Atlantic -- it sails on despite too many captains, too little financing and no clear destination.

Yet thanks to last month's Brussels summit of European leaders, it remains doggedly afloat. At that meeting, the leaders of Spain, Italy and France forced German Chancellor Angela Merkel to retreat. The three biggest countries in the eurozone outside Germany told her they would support neither a proposed pan-European bank regulator nor a European stimulus program unless Germany agreed that upcoming bank bailouts go directly to banks without becoming liabilities of their host countries.

There is sense in this. Europe badly needs a tough, independent agency to ride herd over its financial institutions; individual national regulators simply were not doing a disciplined job of overseeing their own banks. It was vital, moreover, to break the vicious cycle wherein bank bailouts simply burdened financially teetering governments with even more debt. The threat not to support the stimulus was pure bluff, since Spain, Italy and France had all been urging such a program for months.

On this side of the Atlantic, the Federal Reserve has been flashing signals to the markets that it will use all its powers to guard against financial fallout from the never-ending crisis in Europe. It's still unclear if the U.S. recovery is alive or dead in the water.

The economy of the United Kingdom, meanwhile, is in serious recession, and its major banks have just been caught rigging global interbank lending rates. The 4-year-old interrelated struggle of these three economic entities -- the European Union, the United States and the United Kingdom -- to stabilize themselves will spell the fate of the Western economic model.

In this struggle there is a darker reality that we need to come to grips with. We have spent so much time in the West over the past three decades glorifying markets as efficient allocators of capital and powerful engines of growth and employment that we have forgotten they can also be dangerous and corrupt. They are subject to outright, greed-driven dishonesty, such as predatory, robo-signed mortgages in the United States or the rigging of the key interbank rate in the United Kingdom. But they are also subject to the kind of legal dishonesty that allows wealthy individuals and corporations in all three economic zones to wriggle out of paying billions of dollars in taxes. Because market capitalism can be dangerous and dishonest, we need a strong cop on the beat to police it.

The problem in today's unequal contest between private financial institutions and regulators is that the institutions operate globally while regulators operate only nationally. Even when the new European bank supervisory agency is created, it will have to operate in a sort of global troika with the Federal Reserve and the Bank of England.

Western economies have been strongest and fairest when the forces of market capitalism were not unnecessarily fettered, but at the same time the public authorities charged with regulating them were strong and independent. The markets that harness individual greed in the service of broader economic goals are powerful beasts that need to be tamed and checked when they break the rules. Appeasement only leaves the beast hungrier, encouraging not prudence but venality.

Europe is taking its first, awkward steps in the direction of taming the modern beast: the highflying, multinational financial conglomerate.Peter Goldmark, a former budget director of New York State and former publisher of the International Herald Tribune, headed the climate program at the Environmental Defense Fund.