09/22/2008 05:54 PM
Merkel Says Washington Helped Drag Europe into the Credit Crisis
Response to Washington’s multibillion-dollar Wall Street bailout has involved a lot of skeptical grumbling in Germany and the UK. German Chancellor Angela Merkel says the Bush administration has mishandled Wall Street, and that its refusal to adopt stricter rules led to the current crisis.
German Chancellor Angela Merkel: “That cannot be allowed in the international sphere.”
‘This Cannot Be Allowed’
At a political rally in Linz, Merkel indirectly attacked US President George W. Bush. She suggested that American obstinacy had dragged other industrial nations into the credit crisis. Many European countries, she said, had already imposed stringent conditions on their banking sectors. “We dutifully adopted a nice EU directive into national law, and we had to deal with numerous complaints from small- and medium-sized companies in doing so. When the day came, the Americans said, ‘We won’t’,” Merkel said. “That cannot be allowed in the international sphere.” Merkel complained that taxpayers would be forced to foot the bill in countries far beyond the US and Britain.
She was referring to the “Basel II” agreement, a set of international standards which tightened capital requirements for credit institutions. Much of the EU has signed up to Basel II, and Germany codified it in 2007. But Washington still hasn’t set a date for working its principles into American law.
Europe, she said, “must now push to get greater transparency on the financial markets and to get clearer regulations so that a crisis like the current one cannot be repeated.”
German Finance Minister Peer Steinbrück of the left-leaning Social Democrats is also calling for tighter rules. In an interview with German television he said he wouldn’t rule out the idea of an international authority to hammer out regulations — as opposed to the international agreements favored by his boss, Chancellor Merkel.
The European Commission in Brussels said it would announce its own plan for improved financial market regulation. EU Internal Market Commissioner Charlie McCreevy is planning to consider the first measure on Wednesday, according to a report in the Financial Times Deutschland. On the agenda is a proposal that would require banks to disclose whether they are retaining a stake in loans they sell to other banks.
The requirement could serve as an incentive for banks to pay closer attention to the quality of the credit risks they pass on to others.
The $700 Billion Bailout
But Finance Minister Steinbrück said Monday there was no need for Germany to fall in line with the Americans in bailing out its banks. After a telephone consultation with the finance ministers and heads of the central banks of the G-7 states, he said no other member planned to follow the US example. He described Washington’s program as “remarkable,” but said the situation wasn’t as grave in the other six G-7 countries as in the US.
The German government has officially greeted the US program, saying Washington “takes its special responsibility seriously” in the crisis unleashed by the American subprime mortgage problem. A government spokesman said the measures would help to defuse the crisis.
Others were less certain.
“I have doubts about whether this is the smartest way to deal with the issue,” Michael Meister, the deputy head floor whip of Merkel’s Christian Democrats (CDU) told Handelsblatt, a business daily. Meister said the US could be laying a foundation for the next crisis with its multibillion dollar bailout — mirroring the decision after the Sept. 11, 2001, terrorist attacks to massively lower interest rates, a move which he said triggered the current turbulence on the financial markets.
Joachim Poss, deputy parliamentary whip for the center-left Social Democrats, also rejected calls from Washington to participate in the bailout. “The Americans can’t make Germany liable for their own failure and arrogance. A similar action is neither planned nor necessary in Germany,” he said. However, he wouldn’t comment on whether he thought the US bailout was necessary. “That’s an issue for the Americans,” he said.
In Britain, Prime Minister Gordon Brown told the BBC: “People were taking risks that were excessive — and that was mainly in my view in America and we are paying a price for what has come out of America.”
“We’re not working toward implementing a US-style resolution regime,” said a spokesman for Chancellor of the Exchequer Alistair Darling, Britain’s finance minister. “But the prime minister and the chancellor have made clear that we will take whatever action is necessary in the interest of financial stability.”
As a result of the crisis, European countries including Germany, Britain and the Netherlands have announced temporary bans on short sales, which many experts say helped bring Wall Street’s powerful investment banks to their knees.
The global financial crisis could also have a stronger and lengthier impact on the German economy than previously believed. According to information obtained by SPIEGEL, the German government plans to reduce its forecast for economic growth in 2009 from 1.2 percent to 0.5 percent.
dsl — with wire reports
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On the Verge of Collapse: Can the State Save Banks? (09/22/2008)
Dealing with the Credit Crisis: Massive Government Intervention to Bail Out Banks (09/19/2008)
US Financial Crisis: ‘The World As We Know It Is Going Down’ (09/18/2008)
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