In a speech before parliament on Thursday, German Finance Minister Peer Steinbrück said the effects of the financial markets crisis would be felt in economies and labor markets worldwide for years to come. "The world will never be the same as it was before the crisis," the Social Democrat said, adding," the US will lose its status as the superpower of the global financial system."
He blamed the current crisis partly on Wall Street's "blind drive for double-digit profits" and massive bonuses for executives and bankers. He also called for greater regulation in financial markets and a ban on short-selling, and he suggested a role for the International Monetary Fund as a global markets watchdog. He said the unbridled "race for profits" had to be stopped, and that banks should only be able to conduct high risk transactions if they have sufficient capital resources and they report the risks in their balance sheets.
Steinbrück said the crisis would lead to lower economic growth in Germany as well as negative developments in the labor market. "Our economy will also suffer," he said, though he said it would be difficult at this point to estimate what impact it could have on Germany's federal budget. For the time being, he said, tax revenues are stable.
"An American Problem"
The minister reiterated his rejection of calls from Washington for Germany to create a bailout fund for failing financial institutions based on the US model. With a proposed $700 billion bailout package, the US government is hoping to stop the banking crisis. "More than anything, the finance market is an American problem," Steinbrück said.
He also accused the US of serious failures, saying the Americans had been hesitant to introduce stricter rules requiring larger capital reserves at banks. "The US is the source of the crisis and it is the focus of the crisis," he said. The finance minister also blamed an investment banking system that had not been sufficiently regulated, as well as supervisory bodies in the US that were deeply fragmented. "In large parts, this system is insufficiently regulated, and now it is falling apart," he said.
He also criticized Washington's position that the state should take a hands-off approach to regulating and instead leave things up to market forces. This "laissez-fair position" created the crisis, which he said has triggered an "earthquake in the international financial architecture with unimaginable write-offs." Steinbrück spoke of write-offs totalling $550 billion. At some US banks, he said, they have found that they don't even have a sustainable business model.
At the same time, international efforts to manage the crisis have been effective, the finance minister said. "This didn't lead to a collapse of the global financial system," he noted, though there could be "unforeseeable long-term effects stemming from the crisis." Still, he predicted the savings of Germans would be safe and that the country's banking system was "extremely stabile."
Criticism from German Political Parties
Representatives of other political parties also spoke during Thursday's session in parliament. Michael Meister, deputy floor whip for the conservative Christian Democrats called for an intensive debate over how new rules could be applied to financial markets.
"In that sense, the crisis also opens up an opportunity," he said. Meister also defended the government's decision earlier this year to provide a multi-billion euro bailout for IKB bank, plagued by massive write-offs related to the subprime loan crisis.
Oskar Lafontaine, who heads Germany's rising Left Party, warned that the crisis was more widespread than the banking sector, arguing that it's not an economic crisis, but rather one of the entire intellectual and moral direction of Western society. "We no longer have a social market economy because of the regimes of the international financial markets," he said. One consequence is the increasing privatization of the social safety net, and the crisis threatens money invested by millions for their retirements.
Green Party politicians also said they viewed it as a fundamental societal problem. "A neoliberal concept has failed," said the party's parliamentary whip, Fritz Kühn. And the "moral disparity" will become clear if a $700 billion bailout is negotiated at a time when an African relief package worth $70 billion failed. He added that the profit margins of 20 percent promised in the US's financial market-driven economy proved to be an illusion.
A Meeting with Bankers
Steinbrück also met with representatives of major German banks and insurance companies on Thursday to discuss the crisis. In Germany, the fallout from Wall Street has hit the government-owned lending bank KfW, which transferred €300 million to Lehman Brothers the day it filed for bankruptcy protection.
Steinbrück said he would seek industry support in his calls for:
- strengthening international standards for personal accountability for the responsible market players
- uncoupling bonuses and salaries at banks from short-term profits
- banning short-selling worldwide
- harmonizing regulations for stock markets in Europe
Steinbrück is also expected to push the same issues at the upcoming meeting of G-7 finance ministers in Washington on Oct. 10. Germany already sought to push through more transparent international financial market rules at the G-8 meeting in Heiligendamm in 2007, but Chancellor Angela Merkel largely failed to sway her colleagues.
-- dsl with wire reports.