AUS DEM SPIEGEL
Ausgabe 2/2009

The International Downturn In the Globalized Crisis, Everyone Shares the Pain

The upheaval in the financial markets has sent shock waves around the globe. Economies in North America, Europe and Asia are closely connected -- for better or for worse. But now the threat of a new protectionism is taking shape.

By SPIEGEL Staff


Editor's Note: This feature is part of a SPIEGEL series that will continue all week on how the economic downturn is affecting people and companies around the world. No other downturn in history has hit as many of the world's economies. The current crisis is hitting migrant laborers in China, automobile workers in Detroit, Russian oligarchs and even strong traditional German firms like the chemical giant BASF.

Shortly before trading ended at noon on New Year's Eve, the brokers on Wall Street paused for a moment to gather on the floor of the New York Stock Exchange and sing a song together -- not unlike sailors singing together on a sinking ship.

"Wait Till the Sun Shines, Nellie," they sang fervently, a romantic ditty about waiting for the clouds to pass and the sun which will inevitably reappear. It has been the anthem of New York traders for the past 70 years or so, and singing it together on the last day of the year has become a tradition and means of mutual encouragement. Since the days of the Great Depression, its lyrics have never been as appropriate as they are today.

The Dow Jones industrial average has lost almost 34 percent of its value within the last 12 months. Within that time period, investors have lost more than $6 trillion (€4.4 trillion). "It was a horrible year," says trader Roger Volz. "No one was prepared for the pace of destruction." And yet the New York Stock Exchange got off relatively lightly.

Germany's DAX 30 index declined by more than 40 percent, Tokyo's Nikkei 225 index fell 42 percent, and share prices in Shanghai plunged by 65 percent. Investors in Moscow saw the value of their shares decline by more than 70 percent. The Moscow stock exchange even had to be temporarily closed to prevent it from collapsing altogether.

No trading center has escaped the turbulence, and no one has been untouched by the financial crisis. It is spreading -- from bank to bank, from company to company, from continent to continent -- and fast growing into an event of epochal importance: the first global economic crisis since the Great Depression.

Never before in postwar history has there been an economic slump that has dragged down so many economies at the same time, from the major players of the G-7 to economic midgets, from high-tech economies to developing countries. And all of this at an incomprehensible pace.

Graphic: Performance of key global stock markets in 2008
DER SPIEGEL

Graphic: Performance of key global stock markets in 2008

A mere four months ago, it was still inconceivable that scores of banks could be in such dire straits that partial nationalization would be their only salvation. It was unimaginable that the US Federal Reserve could be forced to reduce its key interest rate practically to zero. And who would have believed that a civilized country like Iceland could become insolvent -- and that a staid financial institution like Germany's Bayerische Landesbank would have to write off hundreds of millions as a result. But now everything has changed, and now everything is possible, ever since the US government refused to bail out the investment bank Lehman Brothers on Sept. 15, 2008.

Since then, the status quo -- the system of cheap money, fast credit and the reckless establishment of debt -- has been steadily unraveling. In an op-ed for Newsweek, Yale professor Jeffrey Garten, wrote that the root of the global problem lies in "the fact that banks lent way too much money to too many people and companies that were not worthy." Since that fateful Sept. 15, the flow of capital has run dry, and financial institutions have fallen into something resembling a stupor.

For years, the financial sector became more and more disconnected from the real economy, developing a life of its own in its quest for higher and higher returns. This led to the development of an economy of borrowers based on a foundation of debt. Nevertheless, it all seemed safe enough, because even risks created opportunities to make money. The system made it possible for people to buy houses and companies, for giant corporate empires to be developed and entire economies paid for.

America is a case in point. The country lived beyond its means for decades. Asia granted the United States almost unlimited credit, and the Americans bought foreign goods in return. It was the deal that fueled the world economy -- Asia produces, America consumes -- and the banks provided the necessary capital. But it was clear that this kind of imbalance could not last forever.

Now US consumers are being forced to re-learn an old virtue: frugality. For now at least, Americans are no longer providing the necessary demand for goods -- and the entire world suffers as a result.

At the same time, the inflated financial industry must shrink and reduce its risks; security suddenly takes precedence over profitability. Money has become a scarce commodity once again, and this can jeopardize the very existence of companies that depend on new loans.

These developments have rolled across the global economy like shock waves. They affect the carmakers in Detroit, where employees are worried about their jobs. They have spread to the city of Guangzhou in southern China, where textile factories are laying off workers by the thousands. And they are hitting Russia's nouveau-riche oligarchs, whose vast empires are in fact built on debt. They even impinge on traditional companies like German chemical giant BASF, whose customers are now buying much smaller quantities of plastic parts and insulation materials.

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