Economic outlook remains fragile

September 26, 2009

John Monks-John Monks is general secretary at the European Trade Union Confederation. The opinions expressed are his own.-

One year on from the collapse of Lehman Brothers, we can see that that wreckage was the first of many.

The crisis in financial markets has spread like wildfire into the rest of the economy, despite often skillful effort by many Governments and central banks to keep afloat the banking and credit supply systems.

The sheer scale of recklessness in the banks and the vast rescue plans needed to bail them out is impoverishing western societies – to different extents, it is true, but no-one is untouched by the firestorm.  Unemployment is rising quickly and will reach 11percent in the EU over this winter.

Meanwhile some incorrigible optimists can see the green shots of recovery.  In fact they are mistaken.  What they are seeing are things getting worse less quickly.  Yet this optimistic school is not naive.  There is method in their apparent optimism.

They want “business as usual” to return as quickly as possible.  If the recession is a steep dip but with a quick recovery (v-shaped) then there is no need for systemic change as far as financial institutions are concerned.  And if the recession is over, public debt can be repaid by savage cuts in public expenditure.

I hope the recession is v-shaped although I have to note the recent opinion of the International Monetary Fund that recessions caused by banking failures normally least around seven years.  But, in any event, the cost of the rescues to date is imposing debts of trillions on governments which will take decades to repay fully.

So root and branch reform is necessary and I hope that the G20 in Pittsburgh this week agree on key measures on bonuses, reserves, tax havens and so on, so that never again can banks behave like badly run casinos.

I hope too that governments do not take early action to cut public spending.  As Lord Skidelsky magisterially pointed out in Saturday’s Financial Times, the Conservatives apparent urgent desire to balance the books as quickly as possible is economically illiterate and profoundly dangerous.  The economic outlook is far too fragile for that.  It would as if after El Alamein in 1942, Churchill had said “now we must think about repaying the US loans”.

The Liberal Democrats disappointingly have joined in on ‘who can cut the most’, whereas my line is a modest expansion of public spending on youth unemployment in particular.  We can plan the pay back phase in due course and we must not become obsessed with “who cuts, wins”.

One comment

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”The Conservatives urgent desire to ‘balance the books’ is economically illiterate and dangerous”

Possibly dangerous if attempted too quickly but it is never ‘illiterate” to balance the books. However, it is certainly economically ‘illiterate” to claim that boom and bust is dead and to blow billions of pounds on mind boggling left wing waste during the good times and running up a debt mountain of monstrous proportions for future generations to pay off.
Instead of putting by for the future when times were good our incompetent Government got us into even more debt.
Anyway, they’ve just about convinced everyone that this whole unbelievable mess was the fault of a few bankers.
So no doubt the economically naive and the massive army of non job civil servants which has been created will vote them back in along with the benefit scroungers.

We are now at the start of ‘The lost years’
Effectively printing money does not work as Germany and Japan have found out. Japan has still not recovered after 20 years because low base and QE just moves the problem forward. It does not solve it.

Cheap money and lack of savings causes slumps. Trying more of the same is totally pointless and really is ‘economically illiterate’

Posted by steve | Report as abusive