Confidence in crisis

“From the worst one is never safe”, is what many completely confused economists maintain today. For months their prognostics have been turned upside down. Dragged down by the American financial crisis – unleashed almost two years ago by the crisis of risky (so-called subprime) mortgages – the European economies have in turn been thrown into crisis. It is a deep crisis that is now having repercussions on the real economy and not just on stock exchanges and the speculative economy. While unemployment continues to grow in all European countries, the climate is one of gloom, and the temptation of protectionism is great more or less everywhere. The downturn is sharp and brutal in all economies at the world level, including Europe. In Germany the unemployment rate of 7.4% remains lower than that of France (7.8 % for metropolitan France, 8.2 % including the overseas territories). Between October 2007 and October 2008, the unemployment rate in Spain grew from 8.5% to 12.8%, and has now reached 15%, in other words, if the crisis should further deteriorate, it risks rising to almost double the rate of the eurozone (8.2% in January 2009). After over ten years of strong economic growth, fuelled in particular by the formation of a “real estate bubble”, Spain was brutally precipitated into the economic crisis in 2008 and now its unemployment rate is the highest anywhere in the European Union, with almost 3.5 million unemployed, equivalent to a rise of 50.3 % in one year. According to a study of the BBVA Bank presented on 3 March, the number of unemployed in Spain is set to rise to 4.5 million in 2010, equivalent to 19.7 % of the working population.Surrounded by member countries of the European Union, in this case too Switzerland is registering the effects of the crisis with a certain delay, but the crisis is being felt here too. In Switzerland, the unemployment rate – though it remains low in comparison with the European data – rose to 3.4% in February against 3.3% in January. But, according to the experts, it could rise to 4.3% in 2010. Moreover, the number of beneficiaries of measures of social security, those no longer covered by insurance against unemployment, could increase by 30%. And in Switzerland there are already 250,000 claimants, i.e. over double the number of unemployed, of whom over 132,000 are currently registered in the regional jobcentres (ORP). Despite this gloomy situation, other more optimistic voices are beginning to make themselves heard: the President of the European Central Bank (ECB), Jean-Claude Trichet, estimates a world growth close to zero in 2009, but anticipates a revival in 2010. He said so on Monday, 9 March, at a press conference in Basel, at the Bank for International Regulations (BIR). The reason for this relative optimism is this: the “positive” elements, which are the anti-crisis measures adopted by various governments to counter the economic crisis – as well as the reduction of the prices of raw materials -, have not been taken into due consideration by the markets. Jean-Claude Trichet sees in particular the origin of the economic crisis in “lack of confidence” and warns against the risk of protectionism. He also recommends a positive conclusion of the Doha round on the liberalization of world trade, which has been stalled for eight years. In the meantime, trades unions and the parties of the left are calling for a revival of the economy based on wage hikes, increased family benefits and minimum wages, as well as on a better sharing of company benefits between shareholders and employees. The aim of all these measures is to boost consumer purchasing power, as a way of reviving family consumption. The entrepreneurial world, on the other hand, is in favour of a revival in the form of public support for businesses, especially in the sectors most in crisis, such as the automobile and building industries. As shown by the French Observatory on Economic Cycles (OFCE), it would be better to aim at a revival of consumption, because if investment has a lasting – albeit slow – impact on the economy, the stimulus of consumption has immediate effects on the economic situation. And the time to act is now!