05-Oct (NPR – PlanetMoney) — Europe’s banks are in trouble. They urgently need to raise money to serve as a safety cushion against losses. If private investors aren’t willing to invest, governments should step in.

That’s what Christine Lagarde, the new head of the IMF, said in a big speech this summer.

European officials immediately attacked the idea, calling it “confused” and “misguided.”

Now, just over a month later, European officials are talking about doing exactly what Lagarde said: injecting public money into Europe’s banks.

“Germany is prepared to move to recapitalization,” German Chancellor Angela Merkel said today.

“Capital positions of European banks must be reinforced to provide additional safety margins and thus reduce uncertainty,” European commissioner for economic affairs Olli Rehn told the FT.

The quick reversal explains a lot about a problem European leaders have been struggling with for more than a year now: They’re perpetually a step behind in dealing with the continent’s debt crisis.

Even when European leaders know what needs to be done, they don’t always have the power to do it. The European Union doesn’t have much central authority. Big decisions have to be separately approved by the parliament of each country in the euro zone.

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