We have noted before that the officialdom in the US has been remarkably less than candid (one might say outright dishonest) in discussing the likely trajectory of the financial crisis and economic growth. No one is willing to state the obvious, for instance, that banking crises lead to reductions in living standards, even though consumers are already aware of this sorry fact and are reacting accordingly, tightening up on spending. It is as if they think we are living in a TinkerBell world, that if everyone believes and claps hard enough, we can bring the status quo ante back to life. (Of course, in America, where everything is put in the most rosy terms, the unvarnished truth would come as a shock to the system).
The Germans do not have such delicate sensibilities. The German finance minister issued a blunt warning today. From the Financial Times:
Global financial markets are still at risk of collapse and turmoil will continue until at least the end of 2009, Peer Steinbrück, German finance minister, warned on Sunday.
Mr Steinbrück said he would not try to fool the German public by claiming the government had everything under control: “The danger of a collapse is far from over. Any attempt to give the all clear would be wrong.”
Asked to put a time-frame on how long the danger would last, Mr Steinbrück noted that the government’s €500bn ($635bn, £400bn) rescue package was due to run until the end of next year. “We will certainly need it that long,” he told newspaper Bild-am-Sonntag.
His comments came as many German banks continued to shun the government’s “financial market stabilisation fund”, which offers up to €400bn in credit guarantees and up to €80bn to recapitalise banks, including the option of purchasing toxic assets.