Stockbrokers around the world are braced for a potentially calamitous week as alarm mounts over a looming, Thirties-style global financial crisis. A leaked email about the credit-worthiness of Commerzbank, Germany's third largest bank, yesterday increased fears of the international stock market malaise exploding into a fully-fledged banking crisis.
Commerzbank lost a quarter of its value last week, raising the spectre of Credit-anstalt, the Austrian bank that collapsed in 1931, sparking global depression.
US stock markets have fallen for six consecutive weeks,
to their lowest levels in five years. European markets
have collapsed even further, wiping out nearly half of
the value of European corpora tions in this year alone.
Japan is struggling to put together a plan to save its
banking system, riddled with bad debt after a decade of
recession and falling prices. Now the German economy
threatens to follow.
'There are strong parallels to the Thirties after an
unsustainable "new era" boom,' says Avinash Persaud
managing director for economics and research at State
Street Bank. 'Then, the stock market decline was not
just steep, it was long, taking three years to reach the
bottom.'
'Commerzbank being affected is a sign of the severity.
But in today's crisis risks have been offloaded from the
banks to the markets and ultimately our pensioners, which
makes the problem more difficult to deal with,' he says.
The leaked email about Commerzbank was in response to an
inquiry from a US investment bank about rumours of huge
losses on credit derivatives, which aim to spread risk.
Figures due to be published on Friday will show that a
toll of stock market falls, rising joblessness and war
fears is finally denting the spending habits of
Americans. Economists fear that the result may be a
'double-dip' US recession, taking much of the world with
it.
Europe's finance Ministers, including Chancellor Gordon
Brown, will meet in Luxembourg on Tuesday amid deepening
concern about the stability of the financial system.
Tomorrow evening, the Eurogroup of finance ministers,
excluding Brown, will discuss reforming Europe-wide tax
and spending rules along the lines of the British system,
taking stronger account of economic difficulties.
In the US, the concern is that Alan Greenspan, chairman
of the US Federal Reserve, has insufficient room to cut
interest rates if the economy falls into recession. 'The
[Bush] Administration has two lines of action: tax relief
for the rich [and] reliance on the Federal Reserve. Both
are without effect,' says US economist JK Galbraith in an
interview with The Observer. |
