Can the G-20 Save the World?

The tone of all of this is unexpected, especially coming from the British and Americans. But at its core, the Obama administration simply wants to repair the existing financial system. Under this scenario, as soon as investors have calmed down and a little more control has been introduced, everything will be able to continue as it did in the past. Economist Krugman writes: "Top officials in the Obama administration … still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic…. But the wizards were frauds, whether they knew it or not, and their magic turned out to be no more than a collection of cheap stage tricks."

The Americans can also depend on the fact that the Europeans cannot even agree among themselves. From Madrid to Copenhagen, the representatives of the EU countries are true masters in demanding, at international conferences, tougher rules for the global financial markets. But the minute the same rules are to be imposed on Europe, they quickly lose their steam.

The EU countries have not even managed to agree to a Europe-wide harmonization of banking supervision, even though the relevant plans have been under discussion for years.

A Developing Disaster in the Developing World

Meanwhile, many EU members are all the more energetic when it comes to protecting their own markets against too much competition from other European countries. For example, automaker Renault, responding to pressure from the French government, is shifting production from Eastern European countries back to France.

Experienced Eurocrats fear that if the German government decides to take a stake in stricken carmaker Opel, it could trigger a wave of protectionism. Other governments would begin subsidizing troubled industries or buying up shares in ailing companies.

Emerging nations have also turned to protectionist measures. Russia, for example, is raising duties on used cars, China is tightening import requirements for food and India is banning Chinese toys.

Ironically, the European Union is still seen as a model of multinational cooperation in many parts of the world. But when push comes to shove, the member states resort almost exclusively to national solo efforts. This has been the case with the bank bailouts, with each country arriving at a different solution, none of which has been completely successful to date. Great Britain, for example, opted for a government insurance solution that allows banks to insure themselves with the government against default on their toxic securities, as long as they disclose the securities.

'Out of the Drawer'

Contrary to what it has indicated thus far, the government in Berlin does not intend for now to develop a plan to relieve German banks of their toxic securities. Sources in Berlin say that if the situation doesn't deteriorate further, the existing bank bailout program will be sufficient.

Only if large segments of the banking sector or other important institutions are threatened will the government pull new measures "out of the drawer."

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