This financial crisis is now truly global - Telegraph http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4736387/This-financial-crisis-is-now...

This financial crisis is now truly global

The financial crisis has moved from Wall Street to all streets, as the economic shock causes strains and suffering in every part of the world
economy.

By Adrian Michaels
Last Updated: 9:11PM GMT 20 Feb 2009

In Florida, a state devastated by tumbling house prices and repossessions, the inhabitants are
arming themselves against recession, with requests for concealed weapon permits up 42 per
cent in the past 45 days. In Moscow, the murder rate has climbed by 16 per cent. At Tetsuya's
– the most exclusive and expensive restaurant in Sydney – the waiting list has shrunk from
three months to 24 hours.

Over the past few months, we were told that we were caught in the worst economic crisis for
20 years, then 30, then 80, then 100. It can't be long before someone points out that really, all
things considered, the Black Death was comparatively pleasant. But beyond the hyperbole, one
thing is clear: what began as a financial problem in certain debt-soaked nations is battering the
economies of dozens of others, as well as millions of people working in almost every trade. It
will change behaviour and alter the pecking order of the world's economies. There will be social
unrest and changes of regime. Received wisdom, whether about the benefits of free trade,
globalisation or European integration, may be cast on to a bonfire of recrimination. Estimates of
how long the pain will last range from a year to a decade. Bring out your dead.

Among the most significant developments has been the realisation that the most prudent
Troubled times: demonstrations in France during the first major strike triggered by the financial crisis
countries – such as Germany, Japan and China – will suffer as badly as the spendthrifts, or Photo: AFP/GETTY
even worse. Despite the whiff of hubris that wafted from Berlin when the banks of Britain and
America went into meltdown, Germany's economy contracted by two per cent in the last quarter of 2008, compared with 1.5 per cent for Britain's. The problem was that the
Chinese and Germans were too thrifty: their countries' growth was reliant on sales of goods to countries that were borrowing. Now that Americans can't afford its products,
China's exports have collapsed, down 17.5 per cent in January from a year earlier.

Americans can't spend because their house prices have crumpled, their shares have plummeted and their banks will not – or cannot – lend them any money. Insecurity is also

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forcing cutbacks: January saw the highest monthly jump in unemployment in 34 years. The equally worried Chinese seem to want to save still more: imports into China fell 43
per cent in January compared with the year before. Yet if no one at home or abroad wants to buy their goods, the result will be massive unemployment: some 20 million people
are already said to have lost their jobs. As they head home from the coastal manufacturing belt, their government is trying to force-feed them consumer goods; 80 per cent of
all white goods sold in December were subsidised.

As demand dries up, the arteries of global trade are hardening. Lufthansa's air freight division is putting 2,600 staff on short-time working, while cargo ships have so many
empty containers that shipping rates are a tenth of what they were at last year's peak. The knock-on effects are complex, but painful. "For Rent" signs dot empty storefronts on
the once sought-after stretch of New York's Madison Avenue, where the vacancy rate rose by 50 per cent in 2008. Rents have dropped by a third as the ladies who lunch think
twice about coffee at Barneys, or frocks from Versace. This falling appetite for luxury goods helps explain why half of India's 400,000 diamond workers have lost their jobs.
More than 40 have committed suicide.

Or take car sales, which Carlos Ghosn, the chief executive of Renault-Nissan, estimates could fall by 21 per cent across the world this year. Car companies are begging
governments for handouts – but that won't shift their products from showrooms. Among other things, lower car sales mean fewer catalytic converters, which means that
platinum does not need to be mined so intensively. The price of platinum has fallen by half, and the world's largest producer, Anglo Platinum, which operates mostly in South
Africa, is axing 10,000 jobs.

And so the rural Chinese are not the only ones heading home. Thanks largely to a construction boom, Spain was responsible for a third of the new jobs created in the eurozone
in 2006 and 2007, but is now losing 40,000 a week, and is offering subsidies for migrants to leave (some immigrants are instead digging in, selling home-cooked food at illegal
markets around Madrid). Thai factories and farms used to rely on Burmese expats; aid workers report that thousands of them are now being rounded up and sent home.
Malaysia has banned the hiring of foreigners in certain sectors, while the Philippines, which has 10 per cent of its population working abroad, is braced for family incomes to
tumble. Remittances from overseas are a lifeline for the world's poorest: Africans working in the developed world have been sending back $40 billion a year to support their
impoverished relatives, but the World Bank predicts that this could drop substantially this year.

Even when the crisis is not causing outright misery, it is transforming behaviour. In Britain, employers seem to be choosing to fire women rather than men – but in America,
more than 80 per cent of those losing their jobs have been male; as a result, women are making up an increasing percentage of the workforce. Of course, not every
extraordinary trend or statistic can be blamed on the economic crisis – but it is certainly true that cheap, home-based pursuits are making a comeback, and frippery is out.
Australians spent 13 per cent less on eating out in the last quarter of 2008, while a Manhattan dentist is pitching his teeth-whitening services with the phrase "Make me an
offer".

The challenge is to come up with a political response that does not make things worse. Western countries used to preach openness, free movement of people, the breaking
down of barriers. Now the instinct is to raise the shutters and protect voters' livelihoods. Social unrest is spreading; particularly at risk are the nations of central and eastern
Europe, which fervently embraced the free market after the Berlin Wall came down. As their workers headed west, their businesses loaded up on debt to fuel breakneck
expansion; now, they can't meet their obligations, especially as the region's biggest banks were sold to Italians and Austrians, who might repatriate cash to focus on domestic
demands. "The mess in central and eastern Europe is a clear result of globalisation," says Hans Redeker, a strategist at European bank BNP Paribas. "It should be no surprise
to see [Western] banks acting increasingly locally while trying to please domestic governments."

The world's leaders promise to stop protectionism, but their actions speak differently. A joint statement this week from Gordon Brown and Silvio Berlusconi, Italy's prime
minister, said: "Protectionist measures reduce worldwide growth, deny us the benefits of global trade and confine millions to poverty." Yet both countries are propping up their

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car industries. Congress wants to protect the American steel industry; the French government is spending more on newspaper advertising.

However restless they are, electorates need to remember that a lack of protectionism lay behind a huge increase in prosperity for millions of people. That is not easy when jobs
are being lost. A cleaned-up banking system is a top priority – but the debate has only just started about how our banks are to look, who will run them and how they will be
regulated. "The history of financial crises," warns Michael Pettis, professor of finance at Peking University, "shows a mismanagement of the regulatory framework that comes
out of them."

Above all, consumers are somehow going to have to change their behaviour. Americans are certain to be more prudent during the immediate crisis, but they need to maintain
that more hostile attitude to debt when it is over. It will be just as hard to persuade the Chinese, Japanese and Germans to start spending, in order to supplement export-led
growth with domestic demand. "The world doesn't need more stuff to sell," explains Prof Pettis. "It needs more buyers."

As they mature, Asian economies will in time have better pension and health systems, which will help persuade people that there is a safety net for hard times, and tease
money out from under the mattress. "Surplus countries have to spend their income and enjoy themselves," says Charles Dumas, an analyst at Lombard Street Research. "The
purpose of an economy is to consume." Right now, though, the main objective is survival.

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