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Why Germany can be for Europe what China is for the United States of America


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Why Germany can be for Europe what China is for the United States of America

  1. 1. Why Germany Can Be ForEurope What China is for The United States of America A THEORETICAL APPROACH A presentation by Knut Linke, University of Latvia, at the International Conference: CURRENT ISSUES IN BUSINESS & SOCIETY 05-07 MAY, 2011 RIGA, LATVIA
  2. 2. Overview Current situation Current issues Financial situation Future development Possible solutions
  3. 3. Current situation• Financial crisis since 2007 (up to 2011) • Still existing i.e. in the US, Europe and other states [1] • US goverment just release the unenployment rate for April with a increase of 224.000 new unemployments (9% rate) • Some states have allready recoverd from the crisis • Some states have not recovered already from the crisis [2]• The US had the need to increase their debt to provide internal stability to the country [3]
  4. 4. Current issue• European Union needs to support several states in the union with credits [4], [5] • European Financial Stability Facility (EFSF) • Bad Banks• Available money for states in crisis had to be increased several time during the last month [6]
  5. 5. Financial situation• China supports the US by purchasing T-bonds and supports with this the debt situation for the US [6] • Debt ration from the US reached allready 95% [7] • US gets in the direction to loose his AAA rating [8]• Germany (mainly) and other EU states supports other countries in the EU which are in financial problems (Greece, Portugal, Spain) [9], [10]
  6. 6. Consumer credits
  7. 7. Germany GDP (positive)
  8. 8. China GDP (positive)
  9. 9. Financial situation• Exchange rate in the union is fix based on the Euro • It is not possible to include different efficency and productivity in the union anymore• Exchange rate between China and US depends on a special drawing right (SDR) [11] • Fixend exchange rate between the US and China • No possibility to decrease the cost for US goods to China or to increase prices for goods from China, if the goverment in China does not agree [12]
  10. 10. US GDP (negative)
  11. 11. Spain GDP (currently positive)
  12. 12. Refinancing of the debts• China provides mainly the goods for the consumption behavior in the states [13] • China has a positive trade balance [14] • Refinancing by supporting consumption in the US [15]• Increasing of the available primary market in the EU [16]• German goods are mainly requested and consumed in the European union [16] • Germany has a positive trade balance [17] • Refinancing by supporting consumption in EU and by get in debts to a lower percentage as the credits are given to other countries [16], [18]
  13. 13. Future development• Refinancing for Germany will be get harder on the market • Germany will be still mainly the engine in Europe for growth over the next years [19].• China is re-thinking his financial support for the US [20]: • „Let me be more positive: if I had an agreement with my tailor that whatever money I pay him returns to me the very same day as a loan, I would have no objection at all to ordering more suits from him.”• Adjustment of the international monetary system of floating currencies and open markets [21].
  14. 14. Possible solution• Re-thinking global consumption behaviour • Re-think if China and Germany can always focus on a positive trade balance• Think global, act local • A new Bretton Wood approach with a global currency to avoid exchange issues [30], [31] • Davos 2011• Re-think pure profit orientation
  15. 15. References-1 [1] Tomasz Konicz: Der erste große Klimaaufstand,, 02/11/2011. [2] Reuters: Neuer Absurtz – Griechische Wirtschaft schrumpft dramatisch,,1518,711533,00.html, 02/12/2011. [3] Klaus Först: Staatsverschuldung Ausland: USA, 03/14/2011,, 03/20/2011. [4] EFSF: An introduction to the European Financial Stability Facility, November 2010,, 03/30/2011. [5] James K. Jackson: The Financial Crisis - Impact on the Response by the European Union, Congressional Research Service. 2009. P. 36. [6] Frankfurter Allgemeine Zeitung: Barroso will größeren Euro-Rettungsschirm - Merkel gegen Erweiterung, 01/12/2011, mon~Scontent.html, 02/20/2011. [6] China Daily: China reduziert seinen Besitz an US-amerikanischen Staatsschulden, 02/10/2010,, 02/15/2011. [7] Klaus Först: Staatsverschuldung Ausland: USA, 03/14/2011,, 03/20/2011. [8] Matthew Brown: U.S., U.K. Move Closer to Losing Rating, Moody’s Says, 03/15/2011,, 03/20/2011. [9] Peter Schelling: Im angeschlagenen Spanien schwindet die Hoffnung, 07/12/2010,, 02/12/2011.
  16. 16. References-2 [10] Frankfurter Allgemeine Zeitung: Barroso will größeren Euro-Rettungsschirm - Merkel gegen Erweiterung, 01/12/2011, mon~Scontent.html, 02/20/2011. [11] Werner Antweiler. Special Drawing Rights. University of British Columbia, 2011,, 01/27/2011. [12] Reuters: Währungsstreit – China wertet Yuan minimal auf, 10/13/2010,,1518,722804,00.html, 03/20/2011. [13] Frankfurter Allgemeine Zeitung: Dollar Staatsanleihen - China ist entsetzt über Amerikas Geldpolitik, 11/05/2010, mon~Scontent.html, 03/20/2011. [14] Deutsche Presse Agentur: China macht Schulden wie nie, 03/05/2011, wie-nie-article761065.html, 03/21/2011. [15] Christian Hoyer: USA in China starker verschuldet als erwartet, Börse Go, 03/01/2011, http://www.boerse-,a2478251.html, 03/20/2011. [16] Riva Froymovich, Patrick McGroarty, Nathalie Boschat, Costas Paris: Euro-Pakt steht, EFSF/ESM dürfen Anleihen am Primärmarkt kaufen, Dow Jones Deutschland,ürfen-anleien- am-primärmarkt-kaufen.html, 03/20/2011. [17] Central Intelligence Agency: Public Debt, factbook/rankorder/2186rank.html, 03/21/2011.
  17. 17. References-3 [18] Klaus Förster: Der Gläubiger: Wer leiht dem Staat so viel Geld?,,, 03/21/2011. [19] Michael Schuman: How Germany became the China of Europe, Time,,8816,2053595,00.html, Stuttgart, 07/03/2011. [20] Michael P. Dooley, David Folkerts-Landau and Peter Garber: The revived Bretton Woods System, INTERNATIONAL JOURNAL OF FINANCE AND ECONOMICS, 9: 307–313, 2004, National Bureau of Economic Research, USA, 03/31/2011. [21] Michael Dooley, David Folkerts-Landau, Peter Garber, International Financial Stability – Asia, Interest Rates, and the Dollar, Deutsche Bank Global Marketes Research, 2005. P. 140. [22] Jörg Bibow: Global Imbalances, Bretton Woods II, and Euroland’s Role in All This, The Levy Economics Institute of Brad College, Working Paper No. 486, December 2006, *Skidmore College, Saratoga Springs, NY. This paper was presented at the conference “Euroland: Global Player or Global Drag?” in Lugano, Switzerland, on March 3, 2006. [23] Benjamin Cohen: Bretton Woods System, prepared for the Routledge Encyclopedia of International Political Economy,, 27.01.2011