“ONLY LIP SERVICE”

Interview with Heiner Flassbeck

Heiner Flassbeck describes the financial summit in Washington as failed. In the Frankfurter Rundschau interview, the UN expert says the central problems of speculation with exchange rates and raw materials were not addressed

[This interview published in: Frankfurter Rundschau, 11/16/2008 is translated from the German on the World Wide Web, http://www.fr-online.de.]


Do you agree with German Chancellor Merkel? She says the financial summit was a success.

Flassbeck: No. The heads of state and government admitted a problem exists. However one only heard lip service that the financial markets should be better regulated. The proposals on regulation were hardly enough. In addition, the central problems of speculation with exchange rates and raw materials like crude oil were not addressed.

The G20 worked on 50 themes – like regulation of the speculative hedge funds and harsher prescriptions for risk products on the financial market.

Flassbeck: That is the right direction. However such business models should simply disappear from the screen regarding international conditions.

The hope is that a new Bretton Woods will arise, a new regulating system for the world economy. Is that possible?

Flassbeck: We are very far from that.

Do the heads of states and government not want this or is this beyond their power?

Flassbeck: To speak brutally, the industrial countries divert from the real themes. Dismantling the incredible number of worldwide speculative positions and the enormous imbalances in trade are crucial. In the last weeks and months, we witnessed one international wave of speculation after another. No one speaks about this. These waves were triggered by the US real estate crisis. The speculation with American houses was dangerous. The G20 was silent about this as it was silent about the past financial crises in Asia and Latin America. At that time the industrial countries prevented any discussion of the central causes of the crisis, the non-existing currency system and the failure of national solutions. They are now silent again.

What do you propose?

Flassbeck: The world needs a globally legitimized institution that monitors and scrutinizes on time the financial system where the great speculative bubbles develop. Whole countries should not be turned upside down by currency speculations – as now happens in Iceland, Hungary, Ukraine, Brazil and South Africa. The risks here were foreseeable for years. No one wanted to hear it. They closed their eyes and played down reality everywhere, where the big nations like the US, Europe and Japan had to be engaged for a solution.

Threshold countries as well as industrial states are represented in the G20.

Flassbeck: I hope they understand the game on time and do something against it. If not, they will stand at the end with empty hands.

Is the G20 the right framework?

Flassbeck: We need a G192. All countries must participate. Everyone must join in discussing global financial mechanisms. 44 countries were in Bretton Woods in 1944. This time there were only 20 – although there are many more states in the world today than in 1944.

The globalization critics of Attac urge shriveling the financial markets through a radical redistribution, a special international tax on mammoth assets. Do you agree?

Flassbeck: International redistribution seems beyond our strength. We have not even managed this nationally. Reducing the international imbalances of streams of trade is important because the implicit debtor-creditor positions afflict many countries. Americans can drag its creditors into malaise because they are so heavily indebted globally.

Leftist economists and politicians recommend a “Tobin tax” on international financial transactions to reduce speculative flows of money. Is that viable?

Flassbeck: That is a beginning though not enough. A Tobin tax would only scatter some sand in the machine. An international currency system that fixes and adjusts exchange rates corresponding to the fundamental economic data of countries would be a solution.

Some G20 countries demand a harmonized global economic package. Is that a correct strategy?

Flassbeck: Nothing of that can be seen although it would be a most important step now. We cannot afford to wait until the next financial summit in the spring.

The new US president Obama missed the meeting. Was that a mistake?

Flassbeck: He decided not to attend. Why should he burden himself with something that at the end has no significance? He can make a new beginning.