Drumfire for new economic stimulus programs

While russia and china want a new guiding currency, the usa, great britain and japan are calling for new economic stimulus programs

Last night in london, the world financial summit began with a reception hosted by queen elizabeth ii. Before which there were violent clashes between protesters and police. Protesters broke windows at the bank of england and a branch of the royal bank of scotland and entered the latter. Police surrounded more than 1000 protesters. There were numerous arrests.

At the meeting, the heads of state and government of the 20 most important industrialized and emerging countries (g20) want to discuss measures to overcome the financial and economic crisis and lay the foundation for a new financial architecture. Rough hopes should not be cherished. Unity is invoked in the face of the crisis, but power struggles rage and concepts are lacking. The disagreement is so gross that france has already threatened to leave early.

Even before the world financial summit in the british capital, the massive lines of confrontation that will dominate and lame the summit were already crystallizing. The conflicts cut across the camps, and the eu countries are far from united. The fact that the german government recently agreed to the eu economic stimulus package at the eu summit, contrary to its own positions, in order to be able to present a united front at the g20 summit, was of no use (and now there will be an eu economic stimulus package after all) "eu economic stimulus package"…).

The british prime minister gordon brown the u.S. Course, because again and again the government under barack obama had demanded significantly coarser stimulus programs. The fact that obama and brown coordinated their positions before the summit makes it clear what kind of alliance the british see themselves in.

Calls for further stimulus programs are also supported by japan and the organization for economic cooperation and development (oecd). Berlin wird von der oecd direkt angesprochen. Germany is doing much less than the u.S., for example, even though it has the necessary leeway. "Further stimulus measures are needed, which had to be implemented quickly", demands the oecd in its latest economic outlook, which was published yesterday. To lend weight to this demand, the previous forecast for germany has also been revised significantly downward. Gross domestic product (gdp) is expected to fall by as much as 5.3% this year, according to the special report on the world financial summit.

Japan even clearly accuses the german government of not understanding the seriousness of the situation. Prime minister taro aso said in an interview: "there are countries that understand the importance of fiscal measures, and there are countries that don’t." germany belongs to the second group: "this is the reason why germany takes this position."

While merkel continues to put the brakes on new stimulus programs following the 50-billion-euro demand from the middle class, japan is already tinkering with the third package. After the 90 billion euros already spent to stimulate the economy, almost 160 billion are now to follow. Tokyo wants to "mobilize all available resources". But it is questionable whether their hectic activities will have any effect. According to oecd forecasts, japan’s economy will shrink by as much as 6.6% in 2009, and the dangerous tendency toward deflation is not diminishing in japan either.

Although consumer prices fell again in february compared with the previous month, consumers are spending less and less money. Retail sales were 5.8% lower at the same time. This means that the dangerous merry-go-round is already turning: in view of the threat of mass unemployment, general uncertainty and falling prices, purchases are being postponed. Consumers hope that they will soon be able to buy the product even more cheaply. This is further weakening weak domestic demand in the second-largest economy, eating into corporate profits, deepening the recession and further fueling the crisis. Analysts and the central bank fear prices will fall across the board.

Although japan, after the bursting of the real estate bubble in the 1990s, is now again suffering from serious problems, aso, of all people, wants to play the teacher: "because of our experience over the past 15 years, we know what is needed, while the u.S. And european countries are probably experiencing such a situation for the first time", he said. But how he wants to pay the debt, probably also aso does not know. The government’s new debt is already almost twice as high as the domestic product. This is one of the reasons why he is calling for new packages to get the japanese economy moving again through exports. With his unusually sharp words to the outside world, the hard-hit prime minister is probably trying to survive in domestic politics.

Strange alliances

Strange alliances formed before the summit. After two massive strikes in the country, supported by the majority of the population, france’s nicolas sarkozy has joined germany – in his usual coarse-mouthed manner – in advocating stronger regulation of the financial markets. As a signal to obama and brown, he warned of an eclat if the final declaration was not significantly improved. The current drafts satisfied neither germany nor france, sarkozy declared. For a "false compromise" he is not to be had for a false compromise. He threatened to cancel the summit and leave without signing the document.

There should be better control of all players in the financial markets, including hedge funds and tax havens. There must be "no place, no financial market product and no financial market institution should exist without supervision and transparency" merkel demanded before leaving for london. "We will make sure that concrete agreements are reached from which it will not be possible to withdraw again", she supported france’s position.

The "historic opportunity", the opportunity presented by this crisis must be used to create a new world financial architecture, sarkozy and merkel jointly wrote to eu member states in an attempt to get them on board. "In the long run, excessive budget debt threatens global stability", they also rail against expanding the debt limitlessly with more and more new packages. This is meant as a retaliation to obama’s and brown’s demands, whose budgets have long been out of control through various programs. In the case of great britain, there is already talk of imminent national bankruptcy.

One of the peculiarities is merkel’s apparent agreement with the russians. After a meeting between merkel and president dmitry medvedev yesterday in berlin, they affirmed: "we have no fundamental differences of opinion." for medvedev, too, the focus is on a new financial market architecture. "We are going to london with very similar expectations and positions", said merkel. They want to work together to make the summit a success. This includes a worldwide charter for sustainable management under the umbrella of the united nations, which should prevent a similar crisis in the future. After merkel, medvedev also warned against too high expectations. London is only the prelude, which must be followed by a series of conferences from which a new global financial system must emerge.

The unity on display is merkel’s nod to washington. Merkel’s position on the question of a new guiding currency was ostentatiously left open. For it must not be forgotten that moscow had suggested abolishing the u.S. Dollar as a reserve currency. Medvedev once again said that the crisis highlights the problems of the various currency markets and shows that they are not stable. He reiterated russia’s ideas for a new security architecture, which would also include a new security of supply.

The proposal that the special drawing right (sdr) of the international monetary fund (imf) should replace the dollar as the reserve currency is also being promoted by china. But this would deprive the u.S. Of the unique opportunity to create a "value creation" through the printing press. Taxpayers around the world are being asked to pay for this through hidden inflation. For this reason alone, obama reacted very irritably to the advance and declared that the dollar was "incredibly strong".

At the same time, the dollar is only somewhat stable now, because china is not only propping up the u.S. With its massive purchase of government bonds. The 2 trillion dollar foreign exchange reserves could also be used to go on a shopping spree instead of sitting on a mountain of paper that will soon be worth little or nothing. However, the consequences of such an action are difficult to foresee, even for china. However, the chinese are rightly concerned that the u.S. Is cranking up the printing press too much to stimulate its economy, thereby devaluing its dollar reserves.

China’s long march

It is hardly to be expected that china and russia will now get away with demanding a new lead guard in london. Without a doubt, however, the chinese are once again embarking on a "long march". This time, however, it is not a matter of transforming conditions in the middle kingdom, but of preparing a new world order whose institutions are no longer american and western-dominated. The usa will have to make concessions in this direction in view of the fatal economic situation.

The chinese are now even ready to take on the once considered "imperialist" imperialist and to make more money available to the institution. For this to happen, however, the distribution of votes in the hitherto u.S.-dominated institution will have to change, and russia and china will have to win the support of other developing countries and emerging economies. If both have more influence, they will also be prepared to give the imf a prominent role in financial market control. China has a variety of levers at its disposal, and it will be difficult for the u.S. To avoid adjusting china’s position in the imf, for example. After all, it is the third strongest economic power, with the largest foreign exchange reserves in the world. The fact that china holds only about 4% of the votes at the imf, while the usa holds about 17% (the entire eu 32%) illustrates the imbalance.

Because of the lines of conflict alone, no major results can be expected from the summit in london. In addition, one of the main causes of the crisis remains completely unaddressed. There is the completely bloated financial sector, which has so far been further subsidized and bloated in the programs to fight the crisis, instead of being slimmed down. It was all the cheap loans, all the money that was pumped into the markets after the bursting of the internet bubble to fight the crisis and stimulate the economy that led to new and even bigger speculative bubbles. These have now burst. Doch wenn dieses abgehalfterte system erneut mit viel geld am leben erhalten wird, werden sich die exzesse, wohl in noch groberem ausmab, wiederholen. Daran werden auch neue kontrollorgane kaum etwas andern. Betriebsblind haben weltweit die kontrolleure versagt, die nun ebenfalls erneut eingesetzt werden sollen.