Industrial Policy

The European Union’s response to recent economic crisis is similar to that of the United States in that both nations are hoping government intervention policies will prevent future economic disaster. Many countries in the European Union have adopted similar polices to stimulate growth in specific industries. Policies such as the Sovereign Wealth Fund in France and the Strategic Investment Fund in Britain aim to develop new industries and save failing ones. Unlike the United States and Latin America, these policies have had limited success and have done more saving of failing infrastructure than spurring innovation and growth. The financial intervention policies currently having the most profound effect on the European Union are those that attempt keep the problems of insolvent nations from infecting the entire European market.

The response of The European Union and the IMF to the recent crisis in Greece and Ireland suggests Europe has in part adopted the U.S notion of “too big to fail”. Despite bailing out Greece and Ireland, the debt crisis in Europe still looms with fear that markets in Spain, Portugal, and Italy are also in need of rescue. The EU and the IMF have stepped in to prevent these failing markets from borrowing billions at interest rates that will cripple growth rates and further weaken an already fragile global economy. Earlier this month the European Commission declared “The high level of inter-connectedness and inter-dependence within the financial sector in the Union has given rise to market concerns about contagion.” Regulators have responded to these fears by issuing a temporary $980 Billion in loans for failing markets with a permanent structure in the works for 2013. Political commitment to the Euro has led to a new form of economic governance in Europe. Supranational organizations like the IMF and the European Economic Commission have unprecedented power over insolvent nations. New forms of oversight and sanctions have led to...