D.Days begin in Washington for Union Finance Minister Christian Lindner (FDP). When he rushed a quarter of an hour late to the Kennedy Ballroom of the Fairmont Hotel in the center of the US capital, just before 9am, he had already held his first meetings with finance ministers and central bank governors. The words he chooses in front of reporters who met with Bundesbank chairman Joachim Nagal during the International Monetary Fund (IMF) spring conference.
There are years when history is not written. “We’re in a situation where weeks create decades,” Lindner said. Unlike him, this was confirmed by the participants who had experienced many such conferences. There is no economic recovery after the corona virus infection, which has the biggest impact because of inflation and new supply chain problems. The supply of many goods has been disrupted.
Everyone should be clear, Lindner continued, that the reason for this is not obstacles. Russia alone is responsible for this. “Russia must be isolated – politically, economically and financially.” At the various meetings held in Washington, Russia will certainly not be given a platform to spread propaganda and lies.
The effects of the war of aggression against Ukraine for the world economy are already being seen in the form of rising interest rates, weaker exchange rates and rising food prices. This will hit less developed countries that already have some financial buffers.
The effect of this “highly sensitive, fragile phase” remains open, but the starting point will explode: “We have a global risk. There is a risk of a global debt crisis in developing and developing countries,” Linder said. .
There is no doubt as to whom he saw as the greatest responsibility: the People’s Republic of China. As one of the largest lenders in poor countries, it has a special responsibility. The framework created by the leading economies for debt restructuring and restructuring must now be pushed further. Among other things, it includes clear rules on how government debt can be restructured and how badly it can be calculated in the worst case scenario. China should go here.
Debts from almost every country have risen since the 2020 corona virus outbreak. Accelerated energy and Food prices IMF experts this week complained of food shortages and malnutrition and social unrest, especially in economically weak countries.
Germany wants to provide more support to weak countries through IMF funds
Lindner announced that many IMF funds would provide additional support to stabilize weak countries in Germany. The existing sustainability fund, which aims to ensure better health and climate protection, will be substantially replenished. Germany will provide loans of 6.3 billion euros.
In addition, the IMF pot for the poorest developing countries will have a further 100 million euros. Lindner sought the goal of global cooperation between the states – except Russia. Global growth potential needs to be strengthened and global inflation risks reduced, Lindner said.
The previous day, the IMF had cut its forecast for world economic growth from 20 percent to 3.6 percent in 2022 as part of its global economic outlook. For Bundesbank chairman Joachim Nagal, this is not the last word. “We need to see if this is 3.6 per cent and further revisions are possible,” Nagal admitted, given the pessimistic view of the current economic situation.
As head of the Bundesbank, his main focus is on the growth of inflation. “This is a heavy, huge burden, especially for small and middle-income people,” he said. By that he also refers to the peoples of Europe and Germany. This was a problem in Ukraine before the war, but now it is accelerating. Here the central banks are called with their monetary policy. “We have to face the mandate to bring inflation under control.”
Jens Weidmann, the successor to the long-term chairman of the Bundesbank, has made it clearer than ever what he expects from his central bank colleagues on the governing board of the European Central Bank (ECB) in this short-term position: an immediate rise in the interest rate.
It is true that an emergency break in monetary policy is meaningless, and he warns at first that it is better to act carefully and systematically. But then he named a certain point for a possible first interest rate hike: “the beginning of the third quarter”. It will be in July.
“We should not have stagnation”
In Nagal’s view, ECB’s bond purchases will probably be completed by then. However, the problem of very low inflation rates would have been solved. Reversing the ECB’s target of two percent inflation is increasingly unlikely.
If a comprehensive energy embargo is imposed against Russia and prices rise further, one can see double-digit inflation rates. “We should not have any stagnation,” Nagel said.
In addition to the demands of his own central bank colleagues, Nagel also had a request to the finance ministers: in the future they should make greater efforts to create a buffer in good economic conditions. “The crises of the last few decades have taught us that, whatever the cause, it will take a lot of money to finally cure crises,” he said. More financial resources are always needed to work against crises. Finance Minister Lindner would not have said this differently next to Nagal.
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