Unfamiliar Territory

The central banks of the Western world have now passed the ball to the politicians to solve the crisis. That sounds like handing over a hot potato, but it’s not. The U.S. Federal Reserve and the European Central Bank are buying government bonds and providing the banks with capital. The European Central Bank and the EU Commission are even working on new safeguards for bank bonds that may improve their capital stock; therefore, they are active. They are turrets in the battle against the crisis.

With Available Prescriptions

The policy has seemed weak for quite a while. Now the monetary generals no longer want to be the only line of defense. Politicians are responding. U.S. President Barack Obama and German Chancellor Angela Merkel have discussed a kind of “concentrated action” for an economic program with which joblessness in America and most of the EU can be effectively combated. Given the high national debts, there is hardly room for economic stimulus packages; however, without them their plan will not work.

The weak banks are threatening to trigger another credit crunch, and as a result, the countries have to pay attention to the banks and make sure that they follow an expansive credit policy. So the next economic stimulus package will probably be based on support of the banks. There is something similar happening in Austria. Whoever received state capital had to extend the credits twice as long (as they would had they not received state capital), but that only works when the credit demands of the companies are great enough. The companies also need measures that give them security.

The governments are not to be envied their task. There has never been a comparable situation in economic history. The governments are entering unfamiliar territory with all the coming measures. No one knows what will work, how it will work or whether it will work. Granted, that takes considerable courage, but they were elected because of their courage. With their election, they were trusted to lead a country. Now they have to prove that they can lead without the usual security net of work groups, reports or expert opinions. If the coming measures go wrong, there is nothing they can do but be voted out of office. But gratitude was never a criterion in politics anyway.