THE INTERNATIONAL financial crisis has caught the European Union quite ill-prepared for its devastating impact on Ireland and the other 26 member-states and at a loss to chart a common way through it.
Despite the great progress made towards a single market and a single currency over the last 20 years there is no equivalent regulatory framework for cross-border banking, nor any central tax authority capable of responding at EU level in the same way that national governments have had to do in the last week. The great unwillingness to engage between member-states at a time of unprecedented crisis, coupled with the failure to convene a European Council meeting over the last 10 days, is damaging to the whole EU project.
It is not surprising that governments faced with grave choices arising from the torrential financial flows unleashed by globalised economic forces should act first in their own national interest, as Brian Cowen calmly explained yesterday. Speed is of the essence in this unprecedented situation, when governments are faced with the potential collapse of financial systems providing the life blood of their economies. Even where basic decisions made are well-judged for particular states - such as to guarantee all depositors or only some of them, to cap that financially, to let some banks collapse the better to save others, or to nationalise the sector in whole or in part - mistakes will be made and many consequences are inevitably unforeseen.
The common EU interest in this profoundly uncertain setting is best gauged by a common readiness to come on side of existing rules after the event and a willingness to create new ones arising from this rough and ready experience of necessarily unilateral action. It serves little purpose to indulge in a fit of recrimination and whingeing such as Ireland has been subjected to from the British, German, French and Dutch for what could turn out to be the model for others. The key issue is to explore the desirability and feasibility of a new regulatory framework adequate to the colossal changes in cross-border and transnational banking that have occurred in Europe since the existing rules were agreed.
Since then the proportion of bank assets held in other EU states has doubled to an estimated 24 per cent in 2006, through mergers and acquisitions. This greater financial entanglement explains many of the regulatory difficulties and anomalies arising from the emergency decisions of recent days. The existing network of 51 different national authorities, nine EU committees and 80 bilateral agreements governing these matters is woefully inadequate to deal with such a shock.
This crisis may force such changes, but that will demand a huge effort of political will and a conviction that a more common framework at European level can really make a difference in regulating international financial flows and banking practices. As Mr Cowen put it yesterday, this State has to "defend the stability of our own financial system, but, hopefully, at a European level and a wider global level we can find a means by which this problem is resolved". That task is now put fully on the EU's immediate agenda.