The worst financial and economic crisis since the Great Depression shows no sign of ending and governments and economists are divided on the best way to respond.
The world’s economies and the financial markets are stuck in a vicious downward spiral with indexes slumping further each month. The crisis has decimated the value of financial assets worldwide. The Asian Development Bank calculates they are now worth 40,000 billion euros less than before it started. The Bank World and the IMF are predicting the global economy will shrink this year for the first time since 1945. They anticipate world trade will suffer its worst decline in 80 years. Economists at Natixis bank forecast global GDP will fall one percent this year. The credit freeze – where banks will not lend money – has badly hit consumer demand and consumption. The town of Stroud in south west England is typical. Closed shops dominate its high street. Vicky Hancock, Stroud District Council’s City Centre Manager said that creates numerous problems: “What we find with vacant shops is that it has a downward spiral of negative effects. It starts to affect the businesses that are around them. Vacant shops can also attract vandalism and generally make people feel a bit low about the town centre.” In the United States the unemployment rate reached 8.1 percent of the working population in February. That month alone companies cut 651,000 jobs in an effort to reduce their outgoings as the recession pared profit margins. That is despite the multi-billion dollar government stimulus programme which represents 5.6 percent of US GDP. That is a much higher total than in Europe where Germany is spending 3.3 percent of its GDP, Britain and France up to 1.5 percent, Spain 1.4 percent and Italy, 0.4 four percent. In that the US and Europe are at odds on how to respond to the recession. As the president of the Eurogroup, Luxembourg’s Prime Minister, Jean Claude Juncker, said: “The recent US calls for Europeans to make an additional budgetary effort to counter the effects of the crisis are not appropriate for us.” And economists have said the economic stimulus programmes cannot be fully effective until a clean-up of the financial sector is completed. That requires a plan to rid the banks’ balance books of so-called toxic – that is worthless – assets.