Recently Eye on Europe attended a gathering in London of bankers and insurers involved in trade finance. The mood was gloomy to say the least. While the United States is apparently starting to see "green shootes" in the economic forecast indicating that a recovery may be on its way, predictions for the European Union are that the "down turn" still has some distance to go yet before it flattens out.

One of the reasons why the US economy is starting to look a bit better than its European counter-part, is that Washington has taken a number of extreme economic measures intended to alleviate the pressure on the banking system. While the American Federal Reserve together with the Treasury Department are able to implement relatively quick, and drastic economic counter measures in order to stop the slide, the EU does not have that capacity. A number of speakers at the recent London gathering were critical of this lack of capacity within Europe.

When the European Union launched the euro, the states that joined the common currency gave up control over their individual monetary policy to a European Central Bank based in Frankfurt. That means one bank sets interest rates across the sixteen member states of the Eurozone, and controls the monetary policy of those countries.

The problem with the common currency system, however, is that while the sixteen member countries now share a single currency, their economies are not the same. Germany, for example, is an economy heavily reliant upon exports to countries outside of the EU. France and Spain do not have the same export levels. Thus when trouble strikes the economies of these various countries, the priorities may differ wildly between them. Because of these divergent interests, the European Central Bank cannot move with the freedom or breadth that the US Federal Reserve and the Treasury Department do. Slow moving coordination, divergent interests, and political infighting within the EU seriously undermine the effectiveness the Union's institutions in dealing with the crisis.

What is the solution? The euro isn't going away, and neither is the European Central Bank. However, the big economic powers within the EU may begin to start exerting more power over the monetary policy of the EU, to which one can expect Germany to become more assertive on this issue.