http://wsws.org/articles/2009/nov2009/fina-n26.shtml
German politicians, media warn about the next global financial crisis
By Peter Schwarz
26 November 2009
Within Germany's top political circles fear is growing of a second
international financial crash exceeding in intensity and impact that of
autumn 2008.
At the weekend, Chancellor Angela Merkel and Finance Minister Wolfgang
Schäuble (both Christian Democratic Union—CDU) warned that the economic
crisis was far from over. "We have initially succeeded in limiting the
effects of the crisis on people, but difficulties remain in front of us,"
Merkel told a CDU meeting.
Schäuble compared the present financial crisis with the fall of the Berlin
Wall twenty years earlier. "The financial crisis will change the world as
powerfully as did the fall of the [Berlin] Wall. The balance between
America, Asia and Europe is shifting dramatically," he told Bild am Sonntag.
He also appealed to bankers to exercise restraint when it came to their
bonus payments.
Jean-Claude Trichet, president of the European Central Bank, expressed fears
about a social collapse if there is a new round of bank failures. "It is
surely too early to say the crisis is over," he told a European congress of
bankers in Frankfurt, adding the warning: "Our democracies will not accept
twice giving such extensive support to the financial sector with taxpayers'
money."
The enormous stock market bubble that has formed over the past eight months
is seen as the biggest source of danger of another crash. The most important
share indices—the Dow Jones, the Japanese Nikkei and the German DAX—have
risen by around 50 to 60 percent since March. The prices of crude oil,
copper and other raw materials have also more than doubled. These enormous
increases are not based upon any corresponding economic growth. On the
contrary, economic activity has fallen in numerous countries and many firms
are still posting losses.
The rally in stock prices is due to the enormous liquidity that governments
and central banks have pumped into the economy. Financial establishments are
able to borrow unlimited sums of money from the central banks at virtually
zero interest, and thus make high profits from their speculative deals. The
trillions in taxpayers' money that are being spent to revive the economy do
not flow into investments, but into speculative deals, high payouts to
shareholders, and exorbitant bonus payments for the bankers.
"The stock markets are rising because so much money has to go
somewhere—because shares per se are valued attractively," writes
Wirtschaftswoche, the German business weekly, in an analysis of the current
stock exchange boom. According to the magazine, the price-earnings
ratio—comparing the market value per share to the annual earnings per share
of the respective enterprise—has reached a historic maximum of 133. A
price-earnings ratio of 14 or more is considered to mean shares are valued
excessively.
As a consequence of the crisis, hundreds of thousands of workers in the US
alone are losing their jobs each month, workers are being forced to forgo
wages, and social programs are being cut on a massive scale. At the same
time, the orgy of enrichment of those at the top of society has reached the
same level as prior to the crisis, or even higher.
The large investment banks and hedge funds will this year disburse over $100
billion in bonuses to their staff. Goldman Sachs, the US bank, has set aside
$17 billion for this purpose. In Germany, the 30 largest enterprises listed
on the DAX plan to transfer over 20 billion euros to their shareholders in
the spring of 2010. That is 71 percent of their net profits. In the previous
record year, 2007, the corresponding figure was only 45 percent.
Proportionately less will be available for new investment.
This is the background to the warnings of Merkel, Schäuble and Trichet. They
fear that the shameless enrichment of the financial oligarchy, linked with a
new crisis on the financial markets, could unleash an uncontrollable social
rebellion.
Many experts consider another financial crash to be inevitable. This week's
edition of Der Spiegel, the weekly newsmagazine, ran the following
sensationalized headline, comic book-style, on its front page: "The
trillion-bomb." The 12-page accompanying article begins by asserting that
the question is not whether the present stock market bubble bursts, but
when…
There follows a devastating picture of the present state of capitalist
society: "In the midst of a world economy still gripped by crisis, the
financial elite is again accumulating billions," the article states. "The
old greed is there again, and the old hubris too." Never before in modern
economic history has "the finance industry had such unfettered access to the
finances of the state." Der Spiegel warns expressly of the "risk of
hyperinflation—a breakneck rapidly progressing monetary depreciation, as
Germany experienced at the beginning of the 1920s."
At the same time, citing Adair Turner, chair of Britain's Financial Services
Authority, the article points to the ideological effects of the crisis. It
not only involves a crisis of individual banks, but also a crisis of
"intellectual thought": "Our conception that prices bear important
information, that markets behave rationally and correct themselves in cases
of irrationality, all that has been placed in question." In other words,
capitalism and the free-market economy are thoroughly discredited.
Der Spiegel directs its principal fire against the US government. "The
finance industry in the US is regulated by the finance industry, not by the
finance minister [treasury secretary]," it notes disapprovingly, and lists
the numerous individuals whose careers have extended from the executive
offices of banks such as Goldman Sachs to the offices of the treasury
department, or to the close environs of President Barack Obama, and back
again.
"If one looked at the US with the same analytic coolness as [one looks at]
Russia," observes the American economist James Galbraith, cited in the
article, "one could not avoid speaking of the rule of an oligopoly comprised
of politicians and bankers. The powerful individuals on Wall Street and in
Washington are no less closely interlinked than Prime Minister Vladimir
Putin and the magnates controlling Russia's raw material empire."
Der Spiegel speaks for that section of the German ruling elite that wants to
end the state-financed reflationary measures and the policy of cheap money
as quickly as possible, pleading instead for a lowering of business taxes
and severe budget cuts. Although that would entail a substantial dismantling
of social programs and a short-term increase in bankruptcies and job cuts,
this is considered the lesser evil compared to a sudden economic collapse
with incalculable social consequences.
The attitude of Der Spiegel essentially corresponds to that of the
government in Berlin. The outgoing coalition of the Christian Democrats and
the Social Democratic Party had already enshrined a "debt brake" in the
constitution shortly before September's parliamentary elections, which now
forces the new government onto a drastic austerity course. New state debt
must be reduced from the present 86 billion euros to 10 billion in 2016 .
Finance Minister Schäuble has repeatedly insisted that he will keep applying
the debt brake and adhere to the European Union stability pact, which limits
new debt to three percent of Gross Domestic Product.
But taking into account various internal and external political pressures
means this austerity course is to be delayed by about one year. Chancellor
Merkel fears a further erosion of support for the CDU and the loss of her
government majority in the Bundesrat (upper house of parliament) if,
immediately after the elections, she were to begin implementing social cuts.
On an international level, there are sharp differences with Washington and
London over financial policy, which already led to conflicts before the G20
summit in Pittsburgh.
The US and Britain, which have sacrificed a large part of their industrial
base to the financial sector, have far fewer interests in a restrictive
monetary policy than Germany, whose export trade and industry rank among the
strongest in the world, and which fears the effects of a weak dollar on its
competitive position. The vehemence with which Der Spiegel now attacks the
American finance sector expresses the acuteness of the mutual tensions that
are seldom openly addressed.
This must all be seen as a warning for working people. The global crisis of
capitalism has reached a point where social and political compromise is no
longer possible. Workers must prepare for fierce social struggles.
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