By SPIEGEL Staff
There are, at the very least, signs that this scenario is not quite as unlikely as some would like to claim. The severe crisis is affecting the United States, which is already in a weakened position, and it could accelerate the country's relative demise as a superpower which already began a long time ago.
American industry, or what is left of it, is already in a deplorable condition today. Detroit's Big Three carmakers, General Motors, Ford and Chrysler, have been ailing for a long time and are now on their last legs. In the last three years alone, the three companies have lost a combined $110 billion (€83 billion).
The history of the US auto industry -- and this is what makes the current situation so dramatic -- is the history of America as an economic superpower, from its brilliant ascent to its agonizingly slow demise. The GM model, characterized by massive marketing, little substance and an excessive policy of debt financing, has also become the country's model.
Never before has a country lived at the expense of the future with such reckless abandon. The United States today is an economy that sucks in the savings of other nations. America currently needs more than half of worldwide savings merely to avoid falling below the levels of previous years. The government and private households borrow roughly $1 billion (€760 million) on each business day. Three years ago, the country was only borrowing two-thirds of this amount.
Even when adjusted for the size of today's economy, the US's current debts significantly exceed debt levels during the Great Depression. The superpower has become an empire of debt.
The most dangerous element of President Obama's crisis management program is that this debt is not being reduced, but expanded. The US's national deficit will reach an estimated $1.8 trillion (€1.36 trillion) in 2009 and will only continue to grow after that, perhaps even doubling. About 40 percent of the national budget is already not being covered by revenues.
If only the problem were limited to the United States. But the situation that has been brewing on the periphery of the crisis is far more dramatic than it was in 1929.
This is mainly attributable to the fact that modern globalization had only begun at the time. Many of today's industrialized nations were agricultural economies, and were not linked to the global economic system.
Countries like Romania, Hungary, Russia, Latvia and Ukraine did not play a significant role at the time of the Great Depression. Today, they are either on the brink of bankruptcy or, like Russia, they are in serious trouble because the price of oil has declined dramatically and Western investors are pulling out their money.
The Institute of International Finance expects the flow of capital into the emerging economies of Eastern Europe, Latin America and Asia to fall to only $165 billion (€125 billion) this year, or one-sixth of the level of foreign investment in these countries only two years ago.
Eastern Europe, in particular, is suffering from a massive exodus of capital. The Hungarian forint has lost more than 20 percent of its value since last July, while the Ukrainian hryvna has declined by a third. The tailspin affects banks in Austria, Germany and Italy that had heavily invested in the region. In some countries, more than half of all loans were denominated in foreign currencies.
Experts like economics Nobel Prize winner Krugman believe that, barring a noticeable improvement in Eastern Europe, Austria could face national bankruptcy. Austria's wellbeing depends on the wellbeing of the Eastern Europeans. This, in turn, is closely tied to the influx of foreign investment capital.
There would be serious political consequences if any Eastern European countries became failed states. One would be a threat to the goal of European unification. A divided Europe would not be a peaceful Europe, as radical influences would quickly begin flowing from the edges of the continent towards its center, which is precisely where Germany is located.
The IMF is currently doing its utmost to prevent the collapse of these countries. Special task forces are being established, Hungary and Latvia are being supported and rescue programs for other countries have already been approved.
At its recent summit in London, the G-20 group of major industrialized nations voted to provide the IMF with an additional $500 billion (€380 billion) in lending capital.
Germany is also preparing itself for tougher times, at least in theory. As unemployment rises, tax and social security revenues will naturally decline. As a result, Germany will sink further into the red.
The Nuremberg-based Federal Labor Agency has already sounded the alarm, noting that its reserves will be depleted by this fall. Some €2.1 billion ($2.8 billion) have already been set aside for 2009 to pay for the large numbers of workers that are on short-time schemes, where the shortfall in their wages is partly made up by the government.
The government's reserves for social security benefits are likely to be tapped even further, partly to prevent the development of a politically explosive atmosphere. The "Agenda 2010" labor market and social system reforms adopted under former Chancellor Gerhard Schröder have helped to reduce the costs to the government of welfare programs. But in a crisis of the current dimensions, these laws could also lead to the rapid impoverishment of people who are still part of the middle class today.
Anyone who is unable to find a new job within a few months automatically becomes a welfare case in Germany. In the past, if a 57-year-old worker became unemployed, he would continue to receive 60 percent of his last net salary for 32 months. Only then would he qualify for unemployment assistance. Under the old system, he was able to keep his home and his life insurance policies. This helped to slow the descent into poverty.
Today, the same worker would lose his unemployment benefits after 18 months. If he fails to find a job after that, he stands to descend quickly into poverty. A person who is classified as long-term unemployed receives €351 ($463) a month in government assistance, as well as the cost of rent for "suitable" housing, which, for a single person, is generally restricted to an apartment no larger than 45 square meters (484 square feet). And he only qualifies for this assistance if his savings are minimal.
Germany could soon face a debate over the future of the social welfare state. "We must take an offensive approach to discussing the threat of impoverishment," says one SPD cabinet member.
The cabinet member insists that an amendment to the Hartz IV reforms is at the top of the political agenda, and that the Social Democrats cannot allow their political base to fall into the poverty trap.
Nevertheless, no one in Berlin is currently interested in actively discussing the issue. No one wants to be suspected of fueling public anxiety even further. Politicians are still holding onto the hope that things will not turn out to be as bad as expected after all. Everyone, in fact, still hopes that the differences between today's crisis and the Great Depression will be greater than the parallels.
Unlike 1929, the governments of the major industrialized nations today are generally in agreement and are combating the crisis together, a commitment they agreed upon at the London G-20 summit in early April.
Unlike 1929, the social welfare network, especially in Germany, provides citizens with a cushion against the most acute hardships. Under the Obama administration, America's social safety net is also being improved.
Unlike 1929, the world's major countries are flooding the economy with money to prevent deflation and, with it, a downward spiral of declining prices and income.
But no one knows whether this will suffice, or whether all the money being thrown at the aggressive virus fueling this crisis will only make it worse. Debts are being fought with debts, meaning that not only banks but entire countries could end up bankrupt. Perhaps the efforts to combat the current crisis are merely laying the foundations for the next crisis, which will be bigger still.
Economic historian Werner Abelshauser is among those who refuse to rule out anything. "History doesn't repeat itself," he says. But then he quickly adds: "Or does it?"
MARKUS DETTMER, RÜDIGER FALKSOHN, ALEXANDER JUNG, ALEXANDER NEUBACHER, GREGOR PETER SCHMITZ, HOLGER STARK, GABOR STEINGART
Translated from the German by Christopher Sultan
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