What’s clear from the behavior of European financial markets over the past two weeks is that the dramatic stories of financial meltdown and panic are deliberately being used by certain influential factions in and outside the EU to shape the future face of global banking in the wake of the US subprime and asset-backed security (ABS) debacle.

The most interesting development in recent days has been the unified and strong position of the German chancellor, finance minister, Bundesbank and coalition government, all opposing an American-style EU Superfund bank bailout. Meanwhile, US Treasury Secretary Henry Paulson pursues his crony capitalism to the detriment of the nation and benefit of his cronies in the financial world. It’s an explosive cocktail that need not have been.

Stock market falls of 7 to 10 percent a day make for dramatic news headlines and serve to foster a broad sense of unease bordering on panic among ordinary citizens. The events of the last two weeks among EU banks since the dramatic state rescues of Hypo Real Estate, Dexia and Fortis banks, and the announcement by UK Chancellor of the Exchequer Alistair Darling of a radical shift in policy in dealing with troubled UK banks, have begun to reveal the outline of a distinctly different European response to what in effect is a crisis ‘Made in USA.’

There is serious ground to believe that US Goldman Sachs ex CEO Henry Paulson, as Treasury secretary, is not stupid. There is also serious ground to believe that he is actually moving according to a well-thought-out long-term strategy. Events as they are now unfolding in the EU tend to confirm that. As one senior European banker put it to me in private discussion, ‘There is an all-out war going on between the United States and the EU to define the future face of European banking.’

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Editorial Digest: Keeping You Informed!