Former U.S. Treasury Secretary Larry Summers said European leaders’ handling of the sovereign debt crisis evokes comparisons with U.S. strategy during the Vietnam War until helicopters pulled out of Saigon.
“An observer such as myself who wishes the project well, but is able to maintain some degree of detachment, sees in some of what has taken place a pattern all too reminiscent of U.S. decision making during the Vietnam War,” Summers said at the Institute of International and European Affairs in Dublin yesterday.
Citing research by military analyst Daniel Ellsberg, Summers said U.S. policy makers opted at each juncture of the war in Vietnam to do the “minimum” to avoid an imminent catastrophe “until it all collapsed around them and the helicopters left Saigon.”
As the euro-area debt crisis hits its third anniversary, European leaders held their 20th crisis-fighting summit in Brussels this week. Talks were dominated by plans for a banking union and the setting up of a euro-area bank supervisor by year-end.
Summers said that since May 2010 there has been a repeating cycle “playing out at an accelerating rate.” This starts with tension, followed by potential financial crisis in the periphery, summits that deadlock before a “fever pitch of tension” is released by an agreement. The subsequent relief is followed by a reemergence of anxiety as markets realize the problems aren’t fully solved. Summers said he isn’t confident that we have seen the last of those cycles.
“It may be the case that measures are now in place which will avert a severe financial collapse of major financial institutions or major sovereigns,” he said. “That is not assured, but it is possible.”
Still, it is “almost certain” that measures are not in place that will drive adequate economic growth.
Summers said he doesn’t believe that there is a great enough prospect that European monetary “divorce” can be managed without “tremendous ill-effect” to make it a realistic strategy. He said he believed European leaders had come to that “appropriate” judgment.