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GLOBALISATION: So, Back to Regulation, Then

Julio Godoy

BERLIN, Mar 20 2008 (IPS) - The financial crisis around the world marks the end of neo-liberal globalisation and the beginning of a new era of regulation of the global economy, political leaders and economists say.

Germany is beginning to see signs of that – as a part of a pattern spreading fast across Europe and beyond.

Amidst growing concern that the global financial crisis could push more private banks into bankruptcy, German bank managers and political leaders are calling for the state to step in and avert a major economic recession, both national and international.

Josef Ackermann, chief executive officer of Deutsche Bank, the largest private bank in Germany, said in a remarkable speech Mar. 17 that he did not believe any more in "self-regulatory forces of the market." Given the dimensions of the crisis over the last couple of months, "governments must intervene to influence the market," he said.

Ackermann&#39s position was echoed by Deutsche Bank head economist Norbert Walter and by other leading economists. Walter said at a press conference that the financial crisis could last until late 2009. "We need a new organisation and new thinking on regulation of the financial markets."

Michael Heise, head economist at the Allianz/Dresdner Bank, warned that numerous international banks would go bankrupt in the months to come, both in Germany and elsewhere, as a consequence of the financial crisis.

The comments came after the U.S. private bank Bear Stearns sank into a grave liquidity crisis due to its failed speculation with the so-called sub-prime mortgages. These mortgages have involved heavy lending to parties with limited means to repay loans.

Numerous other private banks in the U.S., Britain, Germany, France, and elsewhere in Europe are facing similar difficulties due to failed investments in financial derivatives based on U.S. mortgages excesses.

In Britain, the government nationalised Northern Rock bank last month, which was practically bankrupt due to hazardous investments in the U.S. mortgage market.

Nationalisation of the bank, better known now as &#39Northern Wreck&#39, will cost British taxpayers anything between 55 billion to over 100 billion pounds, (between 110 and 220 billion dollars), according to various estimates. About 100,000 small shareholders have launched an investigation into the affairs of the bank.

State and private banks in Germany face similar problems. The state-owned IKB bank which operates as a private institution, has received state guarantees of 15 billion dollars to avert collapse over failed investments in U.S. mortgages.

The government has been looking in vain for a buyer for the bank. IKB managers admitted Wednesday Mar. 20 that they have had to write off bad loans worth a billion dollars.

State-owned banks in the federal states Saxony, Bavaria and North Rhine-Westphalia have also received heavy public financial support to rescue them from bankruptcy.

In the face of the failure of neo-liberal policies, Oskar Lafontaine, former finance minister in the Social-Democratic government and now leader of the newly founded Left Party, invited Ackermann to join his party.

"With calls such as that of Ackermann&#39s, we can see how deep the crisis is," Lafontaine said in the interview with the newspaper Saarbruecker Zeitung.

Lafontaine called for worldwide re-introduction of regulation mechanisms to control capital flows. He also demanded a tax on speculative financial transactions, in line with the proposal by economist and Nobel laureate James Tobin. "We need investments in the real economy, not speculative transactions," Lafontaine said.

Juergen Trittin, leader of the Green party, and former minister for the environment between 1998 and 2005, said the financial crisis represents the bankruptcy of neo-liberal globalisation.

"Banks first gambled away their clients&#39 money in hazardous speculation, and now expect that the clients, as taxpayers, foot the bill," Trittin told IPS.

Trittin pointed out that until very recently, Ackermann and Walter had been asking the state to keep its hands out of the economy. "Now, it is the state who must play the saviour."

In France too, banks are facing the consequences of a lack of control over speculative transactions. The Société Générale bank lost more than 9 billion dollars in speculative operations in January, and was on the brink of losing up to 75 billion dollars in transactions stopped at the very last minute.

The Société Générale has admitted that it ignored 74 alarms by its own surveillance system, and let pass transactions carried out by its trader Jêrome Kerviel. Similar failures of internal controls have occurred in banks across the globe.

These internal failures come with the incapacity of the market to regulate itself. As Ferdinand Lancina, former Austrian minister of finance between 1985 and 1996, said in an interview with the Vienna newspaper Der Standard, "Neo-liberalism is dead, and for a very long time."