"Deficit Attention Disorder"

I must admit to being delighted that the EU finance ministers have found unity on one point: dismissal of Tim Geithner as officious, ignorant and unaccountable. He is an example, right up there with George W. Bush, of the privileged American elite who "fail upwards" throughout a career.

Europe's nations may have an escalating debt crisis, but they have been addressing it sensibly and cautiously by trying to rein in further debt through reductions in government spending.

The perfect example from the meeting logistics: EU finance ministers shared a bus to the meeting, while Tim Geithner insisted on a private car.

Geithner seems to abhor austerity and sacrifice, preferring any strategy which keeps debt growing to fund the investment banking, security, prisons and war industries on which the American economy now depends for so much of its GDP. (2 percent of Americans are in prison, while 1 percent work for the Department of Defense.)

He encouraged a ten-fold increase in leverage of the EFSF to create a massive new debt overhang. Madness. The cure for a refinancing crisis is not more leverage to be later refinanced.

Europe has its problems, but one thing I know is that the default setting for Europe is cooperation where the default setting for America is conflict. If Tim Geithner's objective in coming to Poland was to stimulate consensus among European finance ministers, then he can go home happy. He succeeded. They are unified in finding him and his policies discredited. They will work together from that consensus to find a more workable solution for Europe than could ever be conceived in Washington, precisely because they will work together in recognition of mutuality of interest.

UPDATE: As this is being linked elsewhere, I'll add a suggestion about what I would advise the eurozone finance ministers. I would advise them to have every EU state with off balance sheet, hidden liabilities on derivatives - whether undertaken for window dressing to gain admission to the eurozone or any other purpose - to default on any further margin or resettlement payments. The Hammersmith and Fulham defaults of the late 1980s proved a wonderful discipline on the investment banks, schooling them in the limits of preying on local governments. It might be time for another lesson at the national level.

Each of the defaulted derivatives contracts could be referred to an EU committee to determine whether the contract had any legitimate rationale beyond disguising the financial condition or otherwise deceiving the public or other EU governments. If there was no legitimate rationale which served the public interest, then the contract would be declared unenforceable.

This wouldn't address decades of deficit spending, but it would provide a popular demonstration of resolve to shaft Wall Street rather than the taxpayer, at least in the first instance. The politicians should then have enough breathing room to reach a more resilient agreement on fiscal policy and funding going forward.

I appreciate that questioning the validity and enforceability of derivatives contracts might be "extra-legal" in the sense that it would be contrary to accepted legal norms. But since virtually every intervention and liquidity programme innovated by a central bank since 2007 has been without legal or statutory basis, despite the huge redistributions of national wealth, I hardly consider that a sticking point.