[Marxism] Germany worries about new bubble

Louis Proyect lnp3 at panix.com
Thu Nov 26 07:40:56 MST 2009

German politicians, media warn about the next global financial crisis
By Peter Schwarz
26 November 2009

Within Germany’s top political circles fear is growing of a second 
international financial crash exceeding in intensity and impact that of 
autumn 2008.

At the weekend, Chancellor Angela Merkel and Finance Minister Wolfgang 
Schäuble (both Christian Democratic Union—CDU) warned that the economic 
crisis was far from over. “We have initially succeeded in limiting the 
effects of the crisis on people, but difficulties remain in front of 
us,” Merkel told a CDU meeting.

Schäuble compared the present financial crisis with the fall of the 
Berlin Wall twenty years earlier. “The financial crisis will change the 
world as powerfully as did the fall of the [Berlin] Wall. The balance 
between America, Asia and Europe is shifting dramatically,” he told Bild 
am Sonntag. He also appealed to bankers to exercise restraint when it 
came to their bonus payments.

Jean-Claude Trichet, president of the European Central Bank, expressed 
fears about a social collapse if there is a new round of bank failures. 
“It is surely too early to say the crisis is over,” he told a European 
congress of bankers in Frankfurt, adding the warning: “Our democracies 
will not accept twice giving such extensive support to the financial 
sector with taxpayers’ money.”

The enormous stock market bubble that has formed over the past eight 
months is seen as the biggest source of danger of another crash. The 
most important share indices—the Dow Jones, the Japanese Nikkei and the 
German DAX—have risen by around 50 to 60 percent since March. The prices 
of crude oil, copper and other raw materials have also more than 
doubled. These enormous increases are not based upon any corresponding 
economic growth. On the contrary, economic activity has fallen in 
numerous countries and many firms are still posting losses.

The rally in stock prices is due to the enormous liquidity that 
governments and central banks have pumped into the economy. Financial 
establishments are able to borrow unlimited sums of money from the 
central banks at virtually zero interest, and thus make high profits 
from their speculative deals. The trillions in taxpayers’ money that are 
being spent to revive the economy do not flow into investments, but into 
speculative deals, high payouts to shareholders, and exorbitant bonus 
payments for the bankers.

“The stock markets are rising because so much money has to go 
somewhere—because shares per se are valued attractively,” writes 
Wirtschaftswoche, the German business weekly, in an analysis of the 
current stock exchange boom. According to the magazine, the 
price-earnings ratio—comparing the market value per share to the annual 
earnings per share of the respective enterprise—has reached a historic 
maximum of 133. A price-earnings ratio of 14 or more is considered to 
mean shares are valued excessively.

As a consequence of the crisis, hundreds of thousands of workers in the 
US alone are losing their jobs each month, workers are being forced to 
forgo wages, and social programs are being cut on a massive scale. At 
the same time, the orgy of enrichment of those at the top of society has 
reached the same level as prior to the crisis, or even higher.

The large investment banks and hedge funds will this year disburse over 
$100 billion in bonuses to their staff. Goldman Sachs, the US bank, has 
set aside $17 billion for this purpose. In Germany, the 30 largest 
enterprises listed on the DAX plan to transfer over 20 billion euros to 
their shareholders in the spring of 2010. That is 71 percent of their 
net profits. In the previous record year, 2007, the corresponding figure 
was only 45 percent. Proportionately less will be available for new 

This is the background to the warnings of Merkel, Schäuble and Trichet. 
They fear that the shameless enrichment of the financial oligarchy, 
linked with a new crisis on the financial markets, could unleash an 
uncontrollable social rebellion.

Many experts consider another financial crash to be inevitable. This 
week’s edition of Der Spiegel, the weekly newsmagazine, ran the 
following sensationalized headline, comic book-style, on its front page: 
“The trillion-bomb.” The 12-page accompanying article begins by 
asserting that the question is not whether the present stock market 
bubble bursts, but when…

There follows a devastating picture of the present state of capitalist 
society: “In the midst of a world economy still gripped by crisis, the 
financial elite is again accumulating billions,” the article states. 
“The old greed is there again, and the old hubris too.” Never before in 
modern economic history has “the finance industry had such unfettered 
access to the finances of the state.” Der Spiegel warns expressly of the 
“risk of hyperinflation—a breakneck rapidly progressing monetary 
depreciation, as Germany experienced at the beginning of the 1920s.”

At the same time, citing Adair Turner, chair of Britain’s Financial 
Services Authority, the article points to the ideological effects of the 
crisis. It not only involves a crisis of individual banks, but also a 
crisis of “intellectual thought”: “Our conception that prices bear 
important information, that markets behave rationally and correct 
themselves in cases of irrationality, all that has been placed in 
question.” In other words, capitalism and the free-market economy are 
thoroughly discredited.

Der Spiegel directs its principal fire against the US government. “The 
finance industry in the US is regulated by the finance industry, not by 
the finance minister [treasury secretary],” it notes disapprovingly, and 
lists the numerous individuals whose careers have extended from the 
executive offices of banks such as Goldman Sachs to the offices of the 
treasury department, or to the close environs of President Barack Obama, 
and back again.

“If one looked at the US with the same analytic coolness as [one looks 
at] Russia,” observes the American economist James Galbraith, cited in 
the article, “one could not avoid speaking of the rule of an oligopoly 
comprised of politicians and bankers. The powerful individuals on Wall 
Street and in Washington are no less closely interlinked than Prime 
Minister Vladimir Putin and the magnates controlling Russia’s raw 
material empire.”

Der Spiegel speaks for that section of the German ruling elite that 
wants to end the state-financed reflationary measures and the policy of 
cheap money as quickly as possible, pleading instead for a lowering of 
business taxes and severe budget cuts. Although that would entail a 
substantial dismantling of social programs and a short-term increase in 
bankruptcies and job cuts, this is considered the lesser evil compared 
to a sudden economic collapse with incalculable social consequences.

The attitude of Der Spiegel essentially corresponds to that of the 
government in Berlin. The outgoing coalition of the Christian Democrats 
and the Social Democratic Party had already enshrined a “debt brake” in 
the constitution shortly before September’s parliamentary elections, 
which now forces the new government onto a drastic austerity course. New 
state debt must be reduced from the present 86 billion euros to 10 
billion in 2016 . Finance Minister Schäuble has repeatedly insisted that 
he will keep applying the debt brake and adhere to the European Union 
stability pact, which limits new debt to three percent of Gross Domestic 

But taking into account various internal and external political 
pressures means this austerity course is to be delayed by about one 
year. Chancellor Merkel fears a further erosion of support for the CDU 
and the loss of her government majority in the Bundesrat (upper house of 
parliament) if, immediately after the elections, she were to begin 
implementing social cuts. On an international level, there are sharp 
differences with Washington and London over financial policy, which 
already led to conflicts before the G20 summit in Pittsburgh.

The US and Britain, which have sacrificed a large part of their 
industrial base to the financial sector, have far fewer interests in a 
restrictive monetary policy than Germany, whose export trade and 
industry rank among the strongest in the world, and which fears the 
effects of a weak dollar on its competitive position. The vehemence with 
which Der Spiegel now attacks the American finance sector expresses the 
acuteness of the mutual tensions that are seldom openly addressed.

This must all be seen as a warning for working people. The global crisis 
of capitalism has reached a point where social and political comp

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