What Was That About US Leadership?

My how fast things can change. Two weeks ago, all of Europe saw the financial crisis as a distinctly American problem, and pointedly declined to join in any rescue efforts. Officials from France, Germany, and Russia all jumped on the post-American bandwagon, insisting that US woes were proof of a failure of US leadership.

After the last 36 hours, during which markets have melted down around the world, others might not be so quick to point fingers. The US may not have kept its economic house in order, but now it hardly seems unique. And more importantly, the US looks, yet again, to be the only country with institutions strong enough and well-funded enough to have a chance of putting a stop to the chaos.

European governments have so far been unable to unite on a common plan of action. European governments are warily eyeing each other, each scrambling to rescue domestic banks. Many of the banks may be too big for their governments to do much good. Despite pledges to cooperate over the weekend, there is no European Treasury to orchestrate an intervention, no group of legislatures in Europe or Asia that could tee up $700 billion in funds to mount a bailout. Japan, meanwhile, has barely emerged from its own decade-long financial problems, and lacks the fiscal and monetary room to do much. China likely has the juice to protect its own economy from the maelstrom, but with its relatively closed financial markets can do little to help stabilize the international system.

So, it looks as if it's up to New York and Washington to come up with some way to staunch the bloodletting. That's not a good thing - reflexive triumphalism or reverse schadenfreude at the rest of the world falling into crisis too would be the exact wrong reaction. Rather, these points are worth keeping in mind when the search for causes points to unique problems in the US banking and regulatory approach, or when the search for solutions focuses on these problems.

Moreover, it's something to keep in mind when the next round of books about US relative decline come out. That decline can be a good thing if it's a result of other countries' relative growth - because they'd then be more able to contribute to solving global crises. Things were bad enough when the US economy hinged on a handful of stressed officials in just two cities; with global markets now tanking too, these officials have fewer options and more problems to address. That's good for no one.