This is not only the worse global economic downturn of the post World War era, it is also the first serious global downturn of the modern era of globalization.  There is need for a global response to this global downturn.  But our responses are framed at the national level, and often take insufficient account of  the effect  on others.  The result is that there is less coordination than there should be, a smaller stimulus than would be optimal-and well less designed.  Every crisis comes to an end, and this one will too.  But a poorly designed stimulus means that the downturn will last longer, and the recovery will be slower, and more innocent victims will be hurt badly.  Among the innocent victims of this crisis are the many developing countries-even countries that have had good regulatory and macro-economic policies-far better than those pursued by the US and some European countries-are being badly affected.  While in the US, a financial crisis transformed itself into an economic crisis, in many developing countries, the economic downturn is creating a financial crisis.  While the U.S. may have the resources to bail out its banks and to stimulate its economy, the developing countries cannot.

A UN meeting later this month hopes to continue a global discussion that began at the earlier G-20 meetings, and hopes to extend the discussion to what went wrong, so that we can do a better job of preventing another such crisis.  The global politics of the meeting are complex.  Many of the 172 countries not members of the G-20 argue that decisions affecting the lives of their citizens should not be made a self-selected club, lacking political legitimacy; some of the members of the G-20-including the new members brought into the discussion for the first time as discussions expanded from the G-8 to the G-20-like it the way it is.  They would like to avoid too harsh criticism of the banks, or of the international economic institutions that not only didn't prevent the crisis, but also pushed the deregulatory policies that contributed so much to its creation and its rapid spread around the world.  Indeed, the G-20 turned to the IMF as the centerpiece of its response to the crisis for the developing countries. 

I chair a UN Commission of Technical Experts whose interim report hopefully will have some influence on the discussions.  Whether it will, and whether anything concrete comes out of the meeting, is too soon to tell.  The international community should realize, however, that what has been done by the G-20, while a good beginning, is just that-a beginning, and much more needs to be done.  Our preliminary report lists ten policies that need to be taken immediately, and ten deeper reforms in the global financial system on which work needs to be begun.  

With its soaring roof and light-filled spaces, Madrid's Barajas airport is a sign of the good times Spain has enjoyed.

But spend some time in the departure lounge and you can see the signs of the economic downturn.

There is raw emotion at the departure gates. Airlines say 25,000 Latin Americans have bought one-way tickets home.

Private equity attacks EU plan

The private equity industry has made a scathing attack on regulatory proposals from the European Union, saying they could restrict free movement of capital.

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The EC's proposals, a response to public anger at the excessive risk-taking that led to the credit crisis, would require alternative fund managers to register, seek government authorisation, and disclose more about themselves and their investments.

The City of London - home to much of Europe's hedge fund and private equity industry - has criticised the added regulatory burden.

Left-leaning European politicians say the proposals do not go far enough.

Jonathan Russell, EVCA chairman and head of buy-outs at 3i, told the Financial Times he was confident of persuading governments to push for wholesale changes in the directive, especially after elections dealt heavy losses to the socialists, who were its main architects.

"The directive would be incredibly complicated - it could really be quite dangerous. You are in danger of clogging up the system," Mr Russell said.

"We can make quite a lot of difference. People in the European parliament and Commission don't want poor-quality legislation. Member states understand that and want . . . a workable solution."

Socialists are incompetent haters of freedom, and want to bring London  down. No wonder they are presented as bumbling...

SPD adopts sober tone to match prudent times

The Federation of German Women Entrepreneurs is not a club the left-of-centre Social Democratic party would normally define as its core audience.

So when Franz Müntefering, the SPD chairman, addressed the association recently at Berlin's Hyatt hotel, braving mild scepticism and an eye-watering mist of Chanel No 5 perfume, he was not exactly on home ground.

However, these are desperate times for Germany's oldest party and junior partner in the national unity government of Angela Merkel, the chancellor.

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Having run an unapologetically leftwing European campaign, calling for higher wages and denouncing "finance sharks", the SPD is now repainting itself as pragmatic and sober to match the prudent zeitgeist.

Beyond the insulting description of female entrepreneurs, the socialists are described as having lost in the European elections for being too lefty rather than not enough, and the commentary is about how they are "desperate" and "opportunistic"...

In the long run, we're all dead. John Maynard Keynes

Crisis - What Crisis? Lessons Learned - What Lessons?

Let us remember that very few months ago bankers and politicians alike threw ashes on their heads and promised both to repent and reform: this was .....

Today, both groups like to talk about "green shoots", of narrowing spreads, of a reversal of the stock market crash, and so on: optimism is in full swing, at least as far as the financial sector is concerned. However, I have the uneasy feeling that they just want to get on where they were stopped before they got us into the biggest financial and economic crisis in 70 years. Lessons learned? - We don't want state interference! Repent? - Let's pay back government money so we can finally get our deserved 2008 bonuses! Reform? Let us not destroy the green shoots, no heavy-handed regulation, especially not on an international level! Remuneration Reform? We want to create value for the shareholders!

Read the whole post. Nothing that would surprise regulars here, but a well written summary of the current situation, made all the more interesting by the fact that the writer is a a(n Austrian) member of the board of the European Investment Bank.

In the long run, we're all dead. John Maynard Keynes

A Recession Measured by New-Home Sales

There have been bad housing markets before, but never in post-World War II history has the market for new homes suffered as badly as it has in this decline.

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At the peak of the housing boom in 2005, sales of both existing and new homes were running at twice the 1976 rate. This year, the sales rate for existing homes seems to have stabilized at about one-third higher than the 1976 rate. New-home sales also seem to have stabilized, but at about half the 1976 rate.

The second chart reflects the same data, but shows how far sales fell from peak levels during each downturn in the past. The plunge in sales of existing homes is severe but not unprecedented. But new-home sales are now running at only about a quarter of peak levels, a fall far deeper than anything seen since the statistics began being collected in the 1960s.

New-home prices, while they have fallen sharply, do not appear to have declined as far as prices of existing homes. At the worst point this year, the median price of existing homes was off 29 percent from the peak, while the largest drop for new-home prices was 23 percent.

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It may be that builders will have to cut prices even more to sell some houses -- houses that, in retrospect, probably should never have been built at all.

Germany and France need to sing in tune

Germany, as I argued last week, is heading in the direction of a zero level of government debt in the long run as a consequence of a new constitutional balanced-budget law.

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Now, Germany is a country with a large current account surplus, or excess of domestic savings over domestic investments - 6.6 per cent of GDP in 2008 and 7.6 per cent the year before. It is no surprise therefore that German banks have been hit so heavily by the securitisation crisis. They had to channel masses of surplus savings abroad. In the event, they bought US subprime mortgages and their derivative products.

They will not repeat the same mistake, but they will still be facing a problem. If Germany's national debt converges towards zero, Germany's surplus savers will have to invest huge amounts of their savings outside the country, since the supply of German government bonds will diminish over time as the outstanding stock of debt is depleted.

Now this is where Mr Sarkozy's bad deficits come in. Most German savers, especially pension funds, will want to invest in euro-denominated government debt, which, for practical purposes in this scenario, means French debt, because no other domestic European bond market is sufficiently large and mature. As a result France may enjoy a version of America's exorbitant privilege.

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How long can this go on? Imbalances can last a long time, but they do not last for ever. Something will have to give. It could be that future generations of German politicians find ingenious ways around the balanced budget law. Or that they find a two-thirds majority to overturn it. Or that Mr Sarkozy or his successors follow Germany into a future of austerity. But as long as one of those three events fails to happen, Germany may discover that unilateral fiscal rigour in a monetary union could prove extremely costly.

Munchau brings up an intriguing way to kick start growth in Europe: have France spend German money (presumably to buy German goods). That does not resolve the main problem of weak-ish incomes, but it could actually be a workable solution in the short and medium term for Europe, and I don't think a situation where France would owe tons of money to Germany be either unsustainable or even seen as a problem. After all, the Germans could just come and enjoy a bit more some holidays in France to solve that...

In the long run, we're all dead. John Maynard Keynes