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The World from Berlin

'The Coordinated Rate Cuts Change Little'

Markets seemed slightly more stable on Thursday, a day after central banks around the world lowered interest rates in a concerted effort. But will the rate cut ultimately have the desired effect? Many German commentators are pessimistic.

It looks as though Wednesday's coordinated rate cuts by central banks around the world may have cauterized the heavy bleeding -- for now at least. Stock markets around the world showed signs of rebounding from three days of at times horrific losses with Asian markets enjoying a relatively stable day of trading. Central banks in South Korea, Hong Kong and Taiwan on Thursday emulated the global trend and cut interest rates. Germany's DAX was up 2 percent in morning trading and Britain's FTSE 100 index rose by 2.6 percent.

Still, even as traders seem to have temporarily taken their fingers off the panic button, uneasiness abounds. Credit markets remain frozen despite immense amounts of cash being pumped in by central banks around the world. Japan's central bank on Thursday injected a record 4 trillion yen ($40.3 billion) into the money market in Tokyo in an effort to get credit flowing again.

The New York Times is reporting that the US Treasury Department is considering a move to buy up ownership stakes in American banks to restore confidence in the financial system and spur the credit markets. The move, unnamed treasury officials told the paper, is allowed under the terms of the recently passed $700 billion bailout package.

In Iceland, which has turned into something of a canary in the coalmine of the financial system meltdown, the government in Reykjavik took over control of Kaupthing, the country's largest bank, on Thursday. It was the third time in a week that Iceland's government has nationalized a leading bank. The moves have come as Iceland's banking sector, which for years has invested heavily abroad, is stumbling badly as credit markets dry up. On Monday evening, the government passed an emergency law allowing Reykjavik far-reaching powers to intervene in bank management. Kaupthing announced that its board has resigned and that it asked the government to take control.

"What we have learned from this whole exercise over the last few years is that it is not wise for a small country to try to take a leading role in international banking," Iceland's Prime Minister Geir Haarde told reporters on Wednesday evening.

Despite the relative stability of markets on Thursday, optimism was still in short supply. "Markets are not turning positive. They are recovering from heavy losses that we saw earlier this week," Rik Zwaneveld, a trader at Amsterdam's AFS Brokers, told the Associated Press. "The sentiment has not really improved."

German commentators on Thursday take a look at the rate cuts and what they might mean for the ongoing financial crisis.

The Financial Times Deutschland writes:

"In the long run, the European Central Bank's decision to lower interest rates is sensible. The financial crisis is providing the occasion to take a step that is long overdue. For months it has been apparent that the euro zone is heading for an economic downturn of alarming proportions. The central bankers, however, have focused only on rising inflation and raised interest rates even further in July -- a bad decision that now has been revised…."

"The economic downturn (in Germany) is not first and foremost the result of the financial crisis. Even prior to the crisis, important consumers of European export goods began stumbling and energy prices were making things more difficult for manufacturers. The ECB's tight interest rate policy put even more pressure on investors."

"The goal must now be to prevent the current crisis from exacerbating the downturn. The last thing the real economy can handle in its precarious state is a credit crunch. A loosened monetary policy can soften the blow. If the ECB needs panic in the markets in order to realize this, that does not speak well of its foresight. In any event, now they are on board."

The center-right Frankfurter Allgemeine Zeitung writes:

"The intention of the central banks is clear: With this concerted action they want to free the banks from the credit squeeze and, with the cheap money, give the banks more incentive to lend. They also hope the rate cut will provide some respite to the tattered nerves of market traders. That is an honorable goal, but there are considerable doubts about their chances of success. The channel between monetary policy and the real economy is clogged -- a blockage that can be found on the credit markets. It won't disappear overnight. Only when confidence improves will there be willingness to take on new risks. And the loans, which are essential to any successful growth, will only get into gear when the American housing market stabilizes and banks are trimmed back into good health. That will likely take months rather than weeks."

Conservative daily Die Welt writes:

"The coordinated interest rate cut changes little when it comes to the core problem, the frozen credit markets among banks. ... But the real effect of the concerted move is the psychological one: While the individual moves by various countries in recent weeks have done little to change the general feeling of doom, the central banks have now shown that they are willing and able to provide a global answer to a global crisis."

"Given the desolate situation of the financial markets, even the European Central Bank has abandoned its tight interest rate policy and dropped rates for the first time in five years. That the ECB kept its powder dry for so long could now prove to be a blessing. It now has room for further interest rate cuts which could be decisive in lessening the consequences of the financial crisis for the real economy -- without sacrificing its painstakingly accumulated credibility."

The left-leaning daily Die Tageszeitung writes:

"The central banks want to spread confidence, but at the same time, they spread fear. Every investor instinctively asks how big the situation must be if six (!) central banks simultaneously (!) sink their rates."

"German Chancellor Angela Merkel had a similar discomfiting experience. She thought that guaranteeing savings accounts would calm nerves. But instead, the move actually made people even more fearful because investors noticed that such pledge had never before been made in Germany's postwar history. A catastrophe must be coming!"

"In addition to this psychological phenomenon, there is an objective problem. Many countries and central banks have already done all that they can do -- they have very little ammunition left…. Investors, in short, aren't worried for nothing. The central banks have relatively little power -- and will come to have even less. Which makes the future look all the darker."

-- Charles Hawley; 12:15 p.m. CET