Real Economic Pain German Industry Wants a Bailout Too

With the real economy beginning to show signs of strain, industrial leaders in Germany say Berlin should do what it can to limit the pain. Global markets on Thursday continued their freefall.

If the world's stock markets were human, they would all be diagnosed with bipolar disorder and immediately put on a strict regimen of antipsychotics. All major indexes across the globe fell off a cliff last week, only to recover rapidly on news of bank bailout plans in Europe designed to jumpstart the financial markets. On Tuesday and Wednesday of this week, the markets plunged once again.

Some would like to see the government take steps to save the real economy as well.

Some would like to see the government take steps to save the real economy as well.

Now, many are calling for further treatment. This time though, the remedy should not be on multi-billion euro bank bailouts, rather it is the real economy that needs a panacea.

Jürgen Thumann, president of the Federation of German Industries (BDI), said on Thursday that the German government needs to take action to lessen the real economic effects of the financial crisis as much as possible. "Under no circumstances should the government reduce its level of investing," he told the Berlin daily Tagesspiegel. "Rather, investments should be sped up and increased. Infrastructure should be upgraded in partnership with private companies."

Thomas Straubhaar, director of the Hamburg Institute of International Economics, went even a step further, calling for the government to put together an economic stimulus package not unlike that undertaken by the US government in the spring. "Every taxpayer should get a check from the government this year," he told the Hamburger Abendblatt.

The concerns about the real economy are valid. German Economics Minister Michael Glos on Thursday is set to lower the country's growth forecasts for 2009 to just 0.2 percent from 1.2 percent, according to SPIEGEL sources.

Furthermore, despite markets reacting positively on Monday to a number of European bailout plans put together over the weekend -- including Germany's €500 billion package, set for parliamentary approval later this week or early next -- Thursday saw a continuation of the drops seen on Wednesday. The Japanese index Nikkei tumbled by 11.41 percent in Thursday trading while the main South Korean index shed 9.25 percent. The market losses mirrored the US Dow Jones index's Wednesday loss of almost 8 percent. The markets were reacting to, among other economic uncertainties, the news that US consumers were much less willing to spend money than expected, with retail sales falling 1.2 percent in September. Germany's DAX at midday on Thursday was managing to hold relatively steady, down 1.75 percent on the day.

'Real Economies Will Be Next'

"This is the end of the beginning," Marino Valensise, head of investment for Baring Asset Management in Hong Kong, told Reuters. "We are going from a situation in which the banks were the main actors in the crisis to a situation where the real economies will be next."

US Federal Reserve Chairman Ben Bernanke likewise warned on Wednesday that the numerous packages established around the world to shore up the credit markets likely won't have an immediate positive effect on the economy.

European Union leaders, meeting in Brussels on Wednesday and Thursday, are set to begin looking into ways to avoid a deep recession and help the real economy get back on its feet, according to a draft version of the final statement obtained by Reuters. "The European Council underlines its determination to take the necessary steps to react to the slowdown in demand and the contraction in investment and in particular to support European industry," the document said according to Reuters.

The European Central Bank (ECB) has already agreed to provide up to €30 billion worth of cheap loans to small businesses in need of cash.

But even as concerns have begun to shift toward the real economy, waves from the financial crisis continue to wash over Europe. The ECB announced on Thursday that it would provide Hungary with up to €5 billion ($6.83 billion) to help the country out with liquidity shortages.

'Steps Taken by US not Sufficient'

Switzerland's two largest banks, UBS and Credit Suisse Group, will also get some much needed cash injections, the banks announced on Thursday. UBS is set to receive 6 billion francs (€3.88 billion) from the Swiss government, with Bern ending up with a 9.3 percent stake in the bank. Credit Suisse raised an additional 10 billion francs (€6.48 billion) from investors including the Qatar Investment Authority.

The European Union has also set its sights on holding a global finance summit in November. Chancellor Angela Merkel and British Prime Minister Gordon Brown called for the meeting at the beginning of the EU summit on Wednesday and said that, in addition to countries belonging to the G-8, China, India and other major world economies should also attend.

The goal of the meeting would be to establish a new, worldwide system of financial rules to preclude another financial system meltdown in the future. French President Nicolas Sarkozy referred to the idea as a "Bretton Woods II," a reference to the 1944 conference in which leading global economies agreed on a new finance structure. Brown said the world needs an early warning system for the global economy.

Many have mentioned the International Monetary Fund as perhaps taking over a more regulatory role in the future. IMF President Dominique Strauss-Kahn has mentioned his willingness to take on the task, and a deputy of his told the Financial Times Deutschland on Thursday that the IMF is ready. "I welcome the fact that the capacities and the role of the IMF are appreciated to such a high degree," Jaime Caruana, director of the Monetary and Capital Markets Department, told the paper. "We are open to further responsibilities relating to controlling and monitoring financial stability."

Before that happens, though, the world's economic leaders may have some more work to do, according to Japanese Prime Minister Taro Aso. Commenting on the renewed plunge of his country's stock market, he said "the markets are selling off stocks because investors still think the steps by US authorities are not sufficient."

cgh -- with wire reports


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