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Fri, Feb 10 2012
ECB's Trichet: Financial crisis a test for globalisation
Trichet, left, received a Doctor Honoris Causa degree from the University for National and World Economy in Sofia.
Photo: Georgi Kozhouharov
The unfolding global financial crisis was the first serious test faced by the globalised economy and central banks had a duty to reinforce the resilience of the global financial system, European Central Bank (ECB) governor Jean-Claude Trichet said in Sofia on June 12 2009.
"We are, for the first time, putting to the test the soundness and resilience of the globalised economy, which has become increasingly integrated over the past fifteen years,"Trichet said in prepared remarks delivered at the University of National and World Economy. "We now have to draw, systematically and without complacency, the lessons of the global crisis that we are fighting against."
"We should not allow that, a few years from now, a new crisis would emerge that would be similar to the current one. That would be unforgivable."
Although the G20 group of developed countries and international financial institutions, the ECB included, had agreed on the broad policies that had to be pursued - reducing procyclicality, fighting short-termism and imposing more transparency - the key now was to have governments swiftly implement their stimulus programmes
"Decisions that have already been taken should be implemented swiftly," Trichet said. "This holds true, in particular, for recapitalisation, as currently only about 55 per cent of funds earmarked for recapitalisation have been used in the euro area. In crisis times, rapid implementation is crucial."
On a global level, the International Monetary Fund had to keep a closer eye on the macroeconomic policies of systematically important countries and economies. "The IMF has to play a fundamental role in such monitoring, coupled with responsible and active peer surveillance," he said.
The European Central Bank, for its part, will continue to be an anchor of stability and confidence.
Trichet was in Sofia as part of the 130th anniversary since the establishment of the Bulgarian National Bank and to receive a Doctor Honoris Causa degree from the University of National and World Economy.
"We are, for the first time, putting to the test the soundness and resilience of the globalised economy, which has become increasingly integrated over the past fifteen years,"Trichet said in prepared remarks delivered at the University of National and World Economy. "We now have to draw, systematically and without complacency, the lessons of the global crisis that we are fighting against."
"We should not allow that, a few years from now, a new crisis would emerge that would be similar to the current one. That would be unforgivable."
Although the G20 group of developed countries and international financial institutions, the ECB included, had agreed on the broad policies that had to be pursued - reducing procyclicality, fighting short-termism and imposing more transparency - the key now was to have governments swiftly implement their stimulus programmes
"Decisions that have already been taken should be implemented swiftly," Trichet said. "This holds true, in particular, for recapitalisation, as currently only about 55 per cent of funds earmarked for recapitalisation have been used in the euro area. In crisis times, rapid implementation is crucial."
On a global level, the International Monetary Fund had to keep a closer eye on the macroeconomic policies of systematically important countries and economies. "The IMF has to play a fundamental role in such monitoring, coupled with responsible and active peer surveillance," he said.
The European Central Bank, for its part, will continue to be an anchor of stability and confidence.
Trichet was in Sofia as part of the 130th anniversary since the establishment of the Bulgarian National Bank and to receive a Doctor Honoris Causa degree from the University of National and World Economy.
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"We are, for the first time, putting to the test the soundness and resilience of the globalised economy, which has become increasingly integrated over the past fifteen years,"Trichet said.."
That shows complete lack of historical perspective. Are folks like that getting payed for flopping their jaws?
Globalization comes in waves and every wave seems to cause a bubble, which bursts, people get hurt, and then it repeats its self. This here's nothing new, but of course to the uninformed, life is always interesting and full of surprises...
First major Globalization [...]
Read the full comment push ended up with the crush of the 1720s, (Louisiana bubble/ John Law) then of course the next wave that ended up with the 1873 Vienna stock market panic that resulted in a 10 year depression.
If you read the history of that bubble, and substitute "America" for China" is almost word for word with the 2008 bubble:
"How Did The Long Depression Start?
The depression began with a building boom in Europe, with rapid building construction taking place in Vienna, Paris and Berlin.
Mortgages were easy to get and large British banks happily made loans to developers. Mortgages were also available from new savings banks designed for the middle-classes. Some of these may have been dodgy. People even used half-completed buildings as collateral because credit was so easy to obtain. This created a housing bubble.
The crisis hit when Russia and Central Europe couldn’t compete with American exports of wheat and other crops, including kerosene which undermined the use of rapeseed oil for cooking. Banks no longer wanted to lend so easily. Eventually the stock market in Vienna crashed and the crisis spread to Western Europe.
The Crisis in America
Before this the United States had seen an era of unprecedented prosperity. Housing and construction boomed. Shops were full of customers. Prices of commodities reached new levels.
America became affected when the inter-bank lending rate shot up. The country had seen a boom in railroad construction financed mainly by large banks, such as Jay Cooke & Company. They had created complicated financial instruments little-understood by investors to finance the railroads. Eventually this became impossible to sustain. Railroad companies went broke and large banks failed. Jay Cooke’s inability to pay its debts led to the stock-market crash of 1873, which is often called the Panic of 1873. The stock market closed for ten days as Wall Street attempted to deal with the problems.
The crisis helped end the Austro-Hungarian Empire. It also affected America very severely, even rivalling the Great Depression in its harshness. More than 100,000 businesses failed after the Panic of 1873. Railroad construction was curtailed and building and manufacturing declined. Mass unemployment (unemployment reached 14%), demonstrations, and strikes beset the nation. In 1874 thousands of unemployed demonstrated in New York’s Tomkins Square Park. This was the largest demonstration that had ever occurred in New York. The first general strike in the U.S. started in 1877 when employers at the Baltimore and Ohio Railroad attempted to cut the worker’s wages for the second time in a year. Riots and confrontations with police soon followed and the strike soon spread to the rest of the country.
How Did The Crisis End?
Railroad expansion and an excellent season of good crops helped to slowly bring confidence back. Stocks began rising again in the late 1870's. Soon another era of prosperity ensued."
Then you had the post WWI Globalization push, which of course ended up with the 1929 NY market crush.
The bottom line is that Globalization kept growing throughout those crushes. It's gonna happen again and there is no such a thing like lessons learnt. That's Snake Oil. It's human nature at work here, nothing rational that we can prevent...
Trichet:
"We should not allow that, a few years from now, a new crisis would emerge that would be similar to the current one. That would be unforgivable."
Idiot...