The International Downturn In the Globalized Crisis, Everyone Shares the Pain
Part 3: A Return to Protectionism
China could also deliberately increase its exports by devaluing the yuan, especially now that the signs of crisis can no longer be overlooked. Exports in November declined by 2.2 percent over the previous year, and workers whose factories are being closed are increasingly taking to the streets. Commerce Minister Chen Deming is still refraining from using the exchange rate instrument, noting that its effectiveness is "limited," given the decline in overseas demand.
The Chinese are putting their trust in conventional tools, for the time being. Beijing has indicated that it plans to spend about $600 billion (444 billion), or about 14 percent of GDP, to stimulate the domestic economy.
Other countries can ill afford economic stimulus programs, and yet they see no other alternative. "In this crisis, doing too little poses a greater threat than doing too much," Larry Summers, a former treasury secretary and current economic advisor to President-elect Barack Obama, wrote in an editorial for The Washington Post.
Obama has promised what will amount to the biggest US government spending program since Franklin D. Roosevelt's New Deal. More than 70 years later, history is about to be made once again, but this time with the "American Recovery and Reinvestment Plan" being developed by Obama's transition team. The next administration hopes to create at least 3 million jobs with the program, many of them in important cutting-edge industries like environmental technology.
The European Union's 200 billion ($270 billion) program seems almost tiny by comparison. EU Commission President Jose Manuel Barroso hopes to "restore citizens' confidence and counter fears of a long and deep recession," as he puts it. He expects member states to take action quickly and stresses that their individual measures "need to be coordinated." But in the end the member states will probably prefer to strike out on their own. All loyalty to Europe aside, each of the 27 heads of state and government wants to save his own country's banks, companies and jobs -- while securing his or her re-election.
French President Nicolas Sarkozy is a perfect example. Sarkozy promised billions to the ailing French automobile industry, and now additional loans and loan guarantees have been promised. The goal is to enable manufacturers to win back market share. But these kinds of measures aimed at protecting the national economy are hardly compatible with the rules of the single European market any more.
The protectionist approach is also expensive. The Irish will likely take out loans this year worth 7 percent of their GDP, while Spain is expected to borrow 5 percent of GDP and Great Britain 8 or 9 percent. Nobody seems to care about the fact that, under the EU's Stability and Growth Pact, a member state's annual budget deficit may not exceed 3 percent of GDP.
Some Brussels economists are sounding a note of caution. According to Klaus Gretschmann, director general for competitiveness in the Council of the European Union, the measures may be "well-intentioned" but they "aren't always well-executed." Gretschmann considers many of the national bailout packages to be poorly conceived, especially those for the financial sector. Without new business models, says Gretschmann, there is a risk that the banks will use the fresh capital to act just as negligently as in the past.
In the end, everyone in Europe is pursuing his own interests. Many find it difficult "to respect the rules," complains European Commissioner for Competition Neelie Kroes. What is missing is a global strategy against a global recession -- and a body with the authority to coordinate a joint approach. Instead, economies are wasting their energies in national contests for the cheapest currency, the lowest interest rates, the most generous financial aid packages. It's a race that nobody can win.
Although the process of globalization is not being reversed, it is slowed down when each country attempts to protect its own market and pass on the negative consequences of the crisis to trading partners, who then follow suit.
Economists refer to this as a beggar-my-neighbor policy. "This could trigger a chain reaction," warned Simon Evenett of the University of St. Gallen, Switzerland, in a recent statement.
An economist specializing in trade, Evenett already sees signs of such a development. For this reason, Evenett warns, economic leaders should strongly combat protectionist tendencies. He believes there is a lot at stake: "This burgeoning protectionism is threatening a quarter of a century of progress in world trade."
JENS GLÜSING, FRANK HORNIG, ALEXANDER JUNG, MATTHIAS SCHEPP, HANS-JÜRGEN SCHLAMP, WIELAND WAGNER
Translated from the German by Christopher Sultan
- Part 1: In the Globalized Crisis, Everyone Shares the Pain
- Part 2: Dragging Each Other Down
- Part 3: A Return to Protectionism