Das sinking sound

Europe’s leaders can no longer rely on the argument that German resilience will cushion the blow to the continent from the worst global recession in just about anyone’s living memory.

Germany’s economy, Europe’s largest, is now officially confirmed as the basket case of Europe, thanks to a plunge in demand for high-tech goods, stagnant domestic demand, and a strong currency.

Having shrunk by 2.1 percent in the fourth quarter alone compared with 1.5 percent for the 16-member euro area, Germany will hold for a brief period over the weekend the dubious title of the fastest contracting economy in the developed world.

That is, until Japanese GDP data are published on Monday.

Trading floors in Tokyo must be bracing for a very ugly morning indeed. Already expected to shrink by 3.1 percent on the quarter — or a staggering 11.7 percent if stretched over an entire year — the risks are high that the hole in the world’s second largest economy turns out to be even bigger.

Pioneer’s decision on Thursday to cut 10,000 jobs and exit the business of manufacturing flat-screen televisions was an ominous sign of just how quickly world demand is falling away for the high-tech manufactured goods that have made Germany and Japan famous.

No time to wait

Simon Johnson is a former chief economist at the International Monetary Fund and is currently a professor at MIT and a senior fellow at the Peterson Institute for International Economics. Reuters is not responsible for this content and any views expressed are the author’s alone.

Senator Barack Obama won the presidency on Tuesday and comes to Washington in January. But before he even takes office, leaders from around the world descend on Washington November 15th for a Group of 20 summit to tackle the global financial crisis.

The US is saying that a statement of principles (or is that platitudes?) and the establishment of some working groups would constitute success.  The Europeans, particularly Messrs. Brown and Sarkozy, want to establish a process that moves towards some sort of new international financial/economic system (“Bretton Woods II” is the jargon), although they are still quite divided on what this would mean in terms of regulation for financial institutions or – the key point – capital flows.  The emerging markets, who will be very important participants, are not yet putting their cards on the table.

Seven is enough

John Taylor, former Treasury Undersecretary of International Affairs in the Bush administration, says more countries need to be involved in decision making about the financial system, but “we already have the G20,” referring to the Group of Twenty leading economies.

Italian Finance Minister Giulio Tremonti says Italy will push for broadening membership in the Group of Seven when it takes over leading the rich nations’ club next year.


Meyer: markets likely disappointed

Former Fed Governor Laurence H. Meyer says the Group of Seven will likely be forced to issue a stronger statement than the “plan of action” released Friday night.

“I think this will be a considerable disappointment to the markets that a more signficant and dramatic action isn’t announced at this point. And I would expect it won’t take too long for them to see that it is going to be necessary,” Meyer, now a vice chairman at Macroeconomic Advisers, tells Thomson Reuters Markets Washington Bureau Chief Corbett B. Daly.


Guess who’s coming to dinner?

The table is set for the G7 finance ministers and central bank governors meeting in the U.S. Treasury’s marbled and gilded Cash Room.

But some extra guests are coming.

Alexei Kudrin


There are three spaces at the far western end with name cards for Russians: Finance Minister Alexei Kudrin, Deputy Finance Minister Dmitry Pankin, and central bank chairman Sergei Ignatyev. Russian officials were invited to participate in an “outreach dinner” on Friday night that will focus on bank failures and rescues.

U.S. Treasury Secretary Henry Paulson is to be seated at the center of the table draped in white, made up portable sections set in a rectangular arrangement.