(THIS ARTICLE IS MACHINE TRANSLATED by Google from Norwegian)
Of course, this is about lowering interest rates. The central bank in Frankfurt, led by Wim Duisenberg, has resisted all pressure to contribute to new growth in the world economy by lowering interest rates. Interest rates in the euro area are still at 4.75 per cent, after the ECB chose as late as last week not to give in to the demand for change.
The European Central Bank is still more concerned about inflation in Europe than about the effects of a US recession – if it comes. Duisenberg believes in robust growth throughout the union despite the relatively high interest rates, even though the figures have been adjusted downwards compared to forecasts last autumn.
But the European Commission still believes that growth in Europe could be 2.7 percent, against only 1.5 percent growth in the US and zero growth and recession in Japan. The IMF is not so optimistic on behalf of the Europeans, putting the figure at 2.4. Deutsche Bank is even more pessimistic, operating at 2.2 percent.
But all of them are well over two percent in their forecasts. That's good enough, says Duisenberg, who fears that lower interest rates will bring the inflation ghost back. Inflation in Europe is already above the ceiling of two per cent and is now approaching 2.6 per cent for the entire Union. In March, new figures came from Germany that fueled the fear; 4.9 per cent price increase in just one month in the largest economy in the EU.
no lower interest rate until inflation is on the way down again. It makes sense in a local, European market, but no sense in a world that needs lower interest rates to initiate consumption and thus new growth, critics say. Duisenberg has therefore received pepper from both the IMF and the US Treasury Secretary Paul O'Neill. They are cursed that Europeans think they can do it while the rest of the world goes straight to the curb. Therefore, they want an interest rate cut now – right away. And that quickly!
And crisis it is!
It is a real credo in classical, economic thinking. Lower interest rates make it cheaper to borrow and spend money. If companies and consumers spend more money, demand will increase – and thus also profits, production and you name it. And wait, the whole crisis in the world economy is over.
In the United States, growth has fallen from just under seven percent at its highest to an estimated 1.5 percent this year. The stock exchanges have plunged, the IT industry has almost collapsed and consumer confidence has dropped to the lowest in four years. Unemployment is slowly but surely rising again, and from all directions there are reports of massive layoffs.
In April alone, 17.000 IT employees lost their jobs in the United States. Worldwide, well-known and large companies such as Phillips, Motorola, Siemens, Ericsson, Marks & Spencer, Volvo and a dozen others have announced redundancies in the order of 5000, 10.000 or even 20.000 employees.
In Japan, the economy is still at rest. The country has a ten-year recession behind it, the public measures for new growth have not worked and the banks are struggling under the burden of so-called bad loans – which will never be repaid.
In Asia – which crashed in 1997 – growth forecasts are also sharply downgraded. Turkey is in a formidable crisis, with a currency that has been devalued by 40 percent and with a political conflict in addition that has sent investors on the run. $ 13 billion; that is what the country needs to get back on its feet, in addition to the many billions they have already received.
There are signals from Argentina that the country may not be able to repay its loans. As recently as December, Argentina received a mega-loan from the international community of as much as $ 40 billion, and the total loan burden is $ 128 billion – as much as 45 percent of GDP. This year alone, Argentina will repay $ 11.5 billion, in a situation where the recession has lasted for three years already.
Just to mention something.
The world economy is in "a very critical phase," to quote IMF chief Horst Köhler. What one fears now is that things will go really bad since there is no longer any locomotive to pull the economy up by the hairs again. During the last crash, four years ago, the United States was the locomotive. Today, with the superpower heading for a possible recession, there is only Europe.
Which, therefore, refuses to cut interest rates.
Have done their thing
The other countries and regions have done their thing. In the US, Governor Alan Greenspan has cut interest rates four times since the New Year; to 4.5 percent. In Japan, interest rates are at zero in the hope of raising consumption again.
But it hasn't helped anywhere, so far.
All growth forecasts have therefore been written down. The IMF believes growth for the entire world economy will move down to three per cent this year, against 4.8 per cent as originally announced. The World Bank looks even more gloomy about it, putting global growth at only 2.2 per cent this year.
Depending on who you listen to – if you are to listen to any of them now – growth in Europe will be somewhere between 2.5 and 2.7 percent. For the United States it will be between 1.2 and 1.7 percent, and in Japan it will be between zero and 0.6 percent. This is considerably lower than both the IMF and the World Bank thought just a few months ago.
Growth in Asia will be between 3 and 5 per cent, compared with 5.3 for the entire area last year.
2.8 per cent, against 2.7 in the UK, 2.5 in Italy and 2.2 in Germany.
There's not much to the locomotive, but it's better than anywhere else. Wim Duisenberg is aiming for the Union to do well because they largely trade with each other, because consumer confidence is good and because exports to third countries are extremely low. Especially the latter makes Europeans less vulnerable to the shocks that have already hit the rest of the world, he predicts.
But on the same day that Duisenberg maintained the interest rate level of 4.75 percent, the news came that both Siemens and Moulinex have plans to lay off 4000-5000 employees – each. It creates a loss of 10.000 jobs in Europe, and can be a signal that Europeans will not escape the economic crisis either, sums up International Herald Tribune.
