Created by the implosion of the US financial system, the last of the “bubbles” – that of the housing market – is the culmination of over a decade of shortsighted American monetary policies and an inadequate monitoring system. The situation is particularly grave, with forecasts that world growth will fall from 5% in 2007 to little more than 1% in 2009. As yet, it is not possible to predict how long the recession will last.
The crisis has not only brought the American financial system to its knees and raised questions regarding the rules that govern the sector, it has also given a severe jolt to the development models of certain European countries. Those who, like the United Kingdom, Spain and Ireland, based their growth on the centrality of housing and finance, today find themselves more exposed than Italy, Germany and France, who also focused on other sectors.
In order to deal with such a difficult situation, a series of measures have been adopted with the main aim of reducing the impact of the crisis on society and the industrial system. We are not, however, out of the financial crisis yet and it is hardly conceivable that actions tailored to address the economic crisis will also resolve the financial one. Indeed, we will soon have to face up to the negative consequences produced by some of these measures.
The solution to the financial crisis will be legal in nature, requiring the creation of a new set of rules and values that are as widely-adopted as possible. In fact, it is unlikely that such a system will really be effective if it is not also, and above all, endorsed by the United States.
During the debate, it was observed that in Europe, the Commission – set in its ways, according to some – and the ECB – reluctant for various reasons to pursue policies adopted by other countries, according to others – have provided the backdrop for an intense burst of political activity by the heads of government of the major European countries, confirming the preference at this stage for an intergovernmental over a joint EU approach.
The strategies agreed between European heads of State have led to the creation of rescue packages tailored to the needs of individual States. The measures they contain, whilst capable of further improvement in terms of effectiveness and implementation, could put in place the necessary preconditions for restarting the system. Some entrepreneurs suggested making participation in bank bailouts conditional on increasing the supply of credit. This, along with tax concessions, would enable businesses to seize the acquisition and expansion opportunities offered by the crisis, and would result in there being several strong performers better-equipped to compete in the globalized market.
While the end of the crisis may not be foreseeable, the need to think about a possible “exit strategy” is. Will States, who for the first time are being called on to intervene in the economy not through their own choice of industrial policy, know how to take that necessary step backwards to guarantee a return to normality? All those present called for this normality to be based on a social market economy or, as termed by some, a real market economy characterized by a sound relationship between the industrial system and the credit system. The other two alternatives, it was observed, are not desirable, namely: inflation created by a massive injection of liquidity into the economy in the face of insufficient demand, or the cessation of economic activity and two years of Japanese-style deflation.
Finally, the participants expressed real confidence in Europe’s ability to come out of this crisis economically stronger and equipped with an improved infrastructure network. It was felt that thanks to its diversity, the European Union will be better-placed to deal with globalization than homogeneous nations such as the United States and Japan.