U.S. Losing Finance Superpower Status, Germany Says (Update3)
By Leon Mangasarian
Sept. 25 (Bloomberg) -- German Finance Minister Peer Steinbrueck said the U.S. will lose its position as the world's undisputed financial ``superpower'' and called for a ban on speculative short-selling to help restore the global economy.
Steinbrueck, in a speech on the financial-market crisis to lawmakers in Berlin today, set out an eight-point plan urging greater regulation and larger capital reserves for banks. He championed the German banking system over its U.S. counterpart, dismissing the ``Anglo-Saxon'' model as having ``an exaggerated fixation on returns.''
``The long-term effects of the crisis are impossible to gauge,'' Steinbrueck said. ``One thing seems probable to me: The U.S. will lose its status as the superpower of the global financial system. The global financial system will become multipolar.''
Steinbrueck's comments underline a deepening divide between European and U.S. attitudes to the financial system and how to resolve the rout triggered by the worst U.S. housing slump since the Great Depression. European members of the Group of Seven leading industrial nations refused to back a U.S. bank-rescue plan Sept. 22, with Steinbrueck saying that the U.S. situation ``is not comparable'' to that in Germany.
`Purely Speculative'
In his speech, Steinbrueck targeted short-selling, where traders borrow shares with the hope of buying them back later at a lower price. The global financial community ``must together agree to a ban on purely speculative short-selling at the international level.''
He said in a later interview with Bloomberg Television that someone looking back from 2018 would regard the events of today as the beginning of a ``slight erosion'' in the status of the U.S. in financial terms.
``America will not be the only power to define which standards and which financial products will be traded all over the world,'' he said. ``The dollar will remain a very reliable and important currency, as well as the euro as well as the yuan and the yen, so I think it will perhaps be the starting point of some changes.''
Steinbrueck said that sovereign wealth funds and banks from Asia, the Middle East and Europe will play a bigger role in the new financial world. In the medium- and long-term, ``new pledges of voluntary action or self-regulation by the financial sector'' will not resolve the current crisis, he said.
`Not Enough'
``That's not enough,'' he said in the speech. ``For me the important answer is stronger, internationally agreed regulation at the international level because the crisis goes beyond measures that can be taken by nation states.''
Steinbrueck is a deputy leader of the Social Democratic Party, coalition partners to Chancellor Angela Merkel's Christian Democrats. A former prime minister ofNorth Rhine- Westphalia, Germany's most populous state and home to the industrial Ruhr Valley, Steinbrueck became finance minister in 2005 after Merkel came to power. The two parties will compete against each other in national elections in September 2009.
Merkel pressed for an international framework to bring greater transparency to financial markets during Germany's Group of Eight presidency last year. She returned to that theme this week, welcoming the conversion of the U.S. and the U.K. to her cause while bemoaning them for not listening to her sooner.
Merkel's Mantra
Economic players ``must accept'' rules on strengthening the independence of ratings companies, greater transparency in financial markets and the fact that high-risk products entail big risks, Merkel told employers in Berlin on Sept. 22.
``These measures aren't new; they were spelled out at the G-7 meeting in Heiligendamm,'' northern Germany, Merkel said. ``Germany has always pointed out how necessary they are.''
Steinbrueck, in his speech to the lower house of parliament, the Bundestag, blamed the U.S. as the source of the current crisis that will leave ``deep scars'' globally.
``The U.S. is the origin and the clear focal point of the crisis,'' Steinbrueck said, adding that the ramifications are now ``spreading worldwide like a poisonous oil spill.''
The world will have to brace itself for lower economic growth rates, he said, without giving any new projections for Germany. The government forecasts 1.7 percent growth this year and 1.2 percent in 2009.
Steinbrueck said the root cause of the crisis lies far deeper than the collapse of the U.S. subprime mortgage market.
``In my view, it's the irresponsible overemphasis on the `laissez-faire' principle, namely giving market forces the most possible freedom from state regulation in the Anglo-American financial system.''
To contact the reporters on this story:
Leon Mangasarian in Berlin atlmangasarian@bloomberg.net.Last Updated: September 25, 2008 11:08 EDT
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Germany and UK want global financial regulator
22.09.2008 @ 09:29 CET
The UK and Germany believe that a new international system regulating the financial sector must be constructed to prevent a repeat of global banking crisis in the future.
Peter Steinbrueck, Germany's Social-Democrat finance minister, raised on Sunday (21 September) the idea of "an international authority that will make the traffic rules for financial markets," while speaking to German radio, Reuters reports.
One government alone cannot deal with the consequences of globalisation (Photo: wikipedia)
Meanwhile, UK Prime Minister Gordon Brown is to outline proposals for just such a body, run under the authority of the International Monetary fund, in a speech to the Labour Party conference on Monday, as well as domestic plans to crack down on "irresponsible" bonuses handed out in the City, London's financial quarter.
"I think what people haven't appreciated is we've now got global financial systems but we've only got national regulators to cover them," Mr Brown told the BBC ahead of the speech, adding that he had been trying to convince his international counterparts for years of the need for "a global system of financial regulation."
His finance minister, Alistair Darling, according to the country's Guardian newspaper, is also set to tell his fellow Labour Party members: "Just as one government alone cannot combat global terrorism, just as one government alone cannot combat climate change, so one government alone cannot deal with the consequences of globalisation."
Mr Brown will be pressing world leaders to sign up to such a plan when he visits New York on Thursday for a meeting of the UN General Assembly.
Meanwhile, Germany's chancellor, Angela Merkel, has publicly chastised the US and UK for historical opposition to stronger financial regulation.
Speaking to an election rally in Austria over the weekend, Ms Merkel said: "Today we have come further because now America and Great Britain are also saying 'Yes, we need more transparency, we need better standards for rating agencies'."
The chancellor was referring to US and UK opposition to Berlin plans for greater oversight of hedge funds proposed last June at a G8 meeting.
"We played ball, we adopted a nice EU directive into national law, we had to cope with a lot of complaints from medium sized enterprises, and at the end of the day, the Americans said: we won't," the chancellor said.
In related news, the European Commission is to propose stricter conditions for banks offering credit to other financial institutions, according to draft documents first seen by the Financial Times Deutschland. Banks would now have to say if they maintain part of the risk in their own accounts when offering credit, according to proposals set to be approved by the commission on Wednesday.
Elsewhere, European banks have been lobbying hard to win support under the framework of the $700 billion bail-out of Wall Street announced on Friday by US treasury secretary Henry Paulson.
Banks such as UBS and Credit Suisse, which have significant operations in the US are likely to be eligible for part of the US Treasury's planned buy-out of bad debt held by American financial institutions.
"It's a distinction without a difference whether it's a foreign or a US one," Mr Paulson told the Fox News channel.
However, to participate in the scheme, he suggested that European taxpayers would also have to take part in bankrolling the biggest bail-out of private firms in world history: "Our system's a global one, and I also am going to be pressing colleagues around the world to design similar systems for their banks," he said.
"We are talking very aggressively with other countries around the world, and encouraging them to do similar things, and I believe a number of them will," Mr Paulson said.
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