Micah and Najahe’s Blog

By Leon Mangasarian

Sept. 25 (Bloomberg) — German Finance Minister Peer Steinbrueck said  the U.S. will lose its position as the world’s undisputed financial “superpower” and called for a ban on speculative short-selling to help restore the global economy.

Steinbrueck, in a speech on the financial-market crisis to lawmakers in Berlin today, set out an eight-point plan urging greater regulation  and larger capital reserves for banks. He championed the German banking system over its U.S. counterpart, dismissing the “Anglo-Saxon” model as having “an exaggerated fixation on returns.”

“The long-term effects of the crisis are impossible to gauge,”
Steinbrueck said. “One thing seems probable to me: The U.S. will lose
its status as the superpower of the global financial system. The
global financial system will become multipolar.”

Steinbrueck’s comments underline a deepening divide between European
and U.S. attitudes to the financial system and how to resolve the rout
triggered by the worst U.S. housing slump since the Great Depression.
European members of the Group of Seven leading industrial nations
refused to back a U.S. bank-rescue plan Sept. 22, with Steinbrueck
saying that the U.S. situation “is not comparable” to that in
Germany.

`Purely Speculative’

In his speech, Steinbrueck targeted short-selling, where traders
borrow shares with the hope of buying them back later at a lower
price. The global financial community “must together agree to a ban
on purely speculative short-selling at the international level.”

He said in a later interview with Bloomberg Television that someone
looking back from 2018 would regard the events of today as the
beginning of a “slight erosion” in the status of the U.S. in
financial terms.

“America will not be the only power to define which standards and
which financial products will be traded all over the world,” he said.
“The dollar will remain a very reliable and important currency, as
well as the euro as well as the yuan and the yen, so I think it will
perhaps be the starting point of some changes.”

Steinbrueck said that sovereign wealth funds and banks from Asia, the
Middle East and Europe will play a bigger role in the new financial
world. In the medium- and long-term, “new pledges of voluntary action
or self-regulation by the financial sector” will not resolve the
current crisis, he said.

`Not Enough’

“That’s not enough,” he said in the speech. “For me the important
answer is stronger, internationally agreed regulation at the
international level because the crisis goes beyond measures that can
be taken by nation states.”

Steinbrueck is a deputy leader of the Social Democratic Party,
coalition partners to Chancellor Angela Merkel’s Christian Democrats.
A former prime minister of North Rhine- Westphalia, Germany’s most
populous state and home to the industrial Ruhr Valley, Steinbrueck
became finance minister in 2005 after Merkel came to power. The two
parties will compete against each other in national elections in
September 2009.

Merkel pressed for an international framework to bring greater
transparency to financial markets during Germany’s Group of Eight
presidency last year. She returned to that theme this week, welcoming
the conversion of the U.S. and the U.K. to her cause while bemoaning
them for not listening to her sooner.

Merkel’s Mantra

Economic players “must accept” rules on strengthening the
independence of ratings companies, greater transparency in financial
markets and the fact that high-risk products entail big risks, Merkel
told employers in Berlin on Sept. 22.

“These measures aren’t new; they were spelled out at the G-7 meeting
in Heiligendamm,” northern Germany, Merkel said. “Germany has always
pointed out how necessary they are.”

Steinbrueck, in his speech to the lower house of parliament, the
Bundestag, blamed the U.S. as the source of the current crisis that
will leave “deep scars” globally.

“The U.S. is the origin and the clear focal point of the crisis,”
Steinbrueck said, adding that the ramifications are now “spreading
worldwide like a poisonous oil spill.”

The world will have to brace itself for lower economic growth rates,
he said, without giving any new projections for Germany. The
government forecasts 1.7 percent growth this year and 1.2 percent in
2009.

Steinbrueck said the root cause of the crisis lies far deeper than the
collapse of the U.S. subprime mortgage market.

“In my view, it’s the irresponsible overemphasis on the
`laissez-faire’ principle, namely giving market forces the most
possible freedom from state regulation in the Anglo-American financial
system.”

To contact the reporters on this story: Leon Mangasarian in Berlin at
lmangasarian@bloomberg.net.

Posted under Economy, Politics