It now threatens to become the epitaph for the bungled attempts by governments to manage the global financial turmoil. When historians look back at the events of the past few weeks, they will write about the appalling lack of international coordination and cooperation, particularly in Europe.

The one bright spot may be the coordinated interest-rate cut by seven major central banks two days ago. But the Federal Reserve-led actions aren’t enough to resuscitate a crippled banking system. When push comes to shove, governments act on an ad-hoc, piecemeal basis and, to the detriment of others, largely out of national self-interest.

Take Ireland. Its government last week started the beggar-thy-neighbour ball rolling when it promised to guarantee the deposits and debts of the country’s six biggest banks, giving them a funding advantage over their non-Irish competitors. Greece mimicked the move on 2 October, followed by Germany, Denmark, Sweden, Austria and Italy.

The world has a systemic problem that requires a broad solution—if not a global approach, at least a pan-European one. First, governments must recognize the need for a comprehensive remedy. Next, they need bucks, big bucks, to recapitalize large swathes of the global banking system— especially in the West—by purchasing worthless securities, making shareholders and creditors pay. For that, as famed American bank robber Willie Sutton said, you go where the money is. Today that’s Asia, home to more than 60% of the world’s foreign-currency reserves. China has $1.8 trillion (Rs87.66 trillion), Japan holds $971 billion and India has $283 billion. After them come Taiwan with $281 billion, South Korea with $240 billion and Singapore with $170 billion.

Several individuals, such as Jeffrey Garten, professor of international trade and finance at the Yale School of Management in New Haven, Connecticut, have argued there’s a need for a global monetary authority. Given the growth in cross-border investment, trade and banking during the past three decades, that makes sense. Right now, that may be a non-starter politically.

Bold move: Spanish economy minister Pedro Solbes (left) talks to Banco Bilbao Vizcaya Argentaria president Francisco Gonzalez on 6 October. Spain said it was prepared to unilaterally guarantee bank deposits. Susana Vera / Reuters

‘Act rapidly’

“If the banks and finance houses are international, then the regulators and those who protect depositors’ interests must also be able to act rapidly across borders," he wrote on 2 October in the International Herald Tribune.

European governments have shown they can move quickly to rescue small and medium-sized banks. But they seem unwilling or unable to come up with a blanket policy designed to deal with a big bank with a large multi-country presence and to prevent the crisis from spreading.

The US units of foreign banks are eligible for assistance under the government’s $700 billion bailout package. Treasury secretary Henry Paulson urged other countries to adopt a “similar" approach. The initial response was underwhelming, with German finance minister Peer Steinbrueck on 25 September saying, “The financial crisis was above all an American problem."

Two weeks later, the UK and Spain seemed to get the Paulson message and announced national bank-rescue programmes. Yet they are only two out of 27 countries in the EU.

Spanish plan

On 7 October, Spain unveiled a strategy to spend as much as €50 billion euros (Rs3.29 trillion) to buy assets from banks, including foreign banks operating in the country. A day later, the UK said it would invest as much as £50 billion (Rs4.11 trillion) in eight major banks—one of which, Abbey National Plc., is Spanish-owned—and that the Bank of England would provide at least £200 billion of loan. The UK has already nationalized two banks and brokered the sale of a third.

European governments are still eschewing an EU-wide strategy. So far, they have agreed only to make supervision in the region more uniform by 2012 and pledged to cooperate in managing crises. They have resisted coming up with a formula for splitting the costs of a major cross-border bailout, if that became necessary. “It is particularly difficult to get agreement among member states who want to preserve control of supervision," EU financial services commissioner Charlie McCreevy said on 29 September.

Last week, France floated the idea of a Europe-wide €300 billion fund similar to the US treasury’s but backed off after it was shunned by German Chancellor Angela Merkel.

Summit agreement

French President Nicolas Sarkozy hosted a summit meeting last weekend for his British, Italian and German counterparts. The best they could come up with was an agreement to relax accounting rules, EU budget restraints and competition guidelines while toughening financial regulations. “Each country must take its responsibilities at a national level," Merkel said at a press conference after the summit.

On 6 and 7 October, EU leaders pledged to “take whatever measures are necessary to maintain the stability of the financial system" and proposed increasing the minimum deposit guarantee to €50,000.

Again, though, they failed to reach a consensus on joint action. There was little support for French and Italian suggestions that Europe create an EU bailout fund.

Too bad. Because the longer Europe resists a universal approach to the credit crisis, the greater the odds it will be confronted with corporate bankruptcies and demands for bailouts.