German politicians, media warn about the next global financial crisis

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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.

http://www.wsws.org/articles/2009/nov2009/fina-n26.shtml

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