Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

What Geithner proposed was standard American maximum-force firefighting doctrine. “The firewall you build has to be perceived as larger than the scale of the problem. You can’t succeed by shrinking the problem to fit your current level of financial commitments. . . . It’s more dangerous to escalate gradually and incrementally than with massive preemptive force.” According to the Treasury’s own estimates, the eurozone needed a fund of at least 1 trillion euros and preferably 1.5 trillion.25 Picking up an idea launched by Mark Carney of the Bank of Canada and Philipp Hildebrand of the Swiss Central Bank, Geithner argued that the European Financial Stability Fund should be leveraged to give it sufficient firepower to act as a firewall.26 The EFSF could borrow against the capital invested in it by Europe’s governments. It was a neat solution, but controversial in Europe, particularly in Germany, because as it increased the fund’s firepower, it also increased the liability for losses.