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Expert: Financial Crisis the Worst Since World War II

One of Germany's most respected economists has said the international financial system is in its biggest crisis since 1945. He said he saw some risk for the German economy and called for banking sector reform.

German stockmarket on a bad day

The seriousness of financial crisis now being felt around the world has experts worried

In an article he wrote for the Bild am Sonntag newspaper, economist Peter Bofinger called the current financial crisis the worst in decades and said that lending practices need to be changed so that they go through traditional banks and not via intermediaries.

He also called for increased government regulation to ensure that everyone plays by the rules.

Peter Bofinger

Peter Bofinger

"Only then will financial markets be stabilized," he wrote.

Bofinger, a member of Germany’s independent Council of Economic Experts, said Berlin cannot treat the credit crisis lightly, although he differentiated between the situation in Germany and the United States.

"The (economic) upswing in Germany is not an upswing bought on credit," he said. "Where there is no credit bubble, there can't be a credit burst."

Calls for help

Regarding the recent calls from banks, particularly from Deutsche Bank chief Josef Ackermann, for government help in the face of the current crisis, Bofinger was incredulous.

Deutsche Bank Quartalszahlen November 2006

Deutsche Bank's Josef Ackermann

In a speech on March 17, Ackermann said he did not believe any more in "self-regulatory forces of the market." Given the dimensions of the crisis over the last couple of months, "governments must intervene to influence the market," he said.

Bofinger said this flew in the face of banks' general position over the past few years. "They have done everything they can to get around government rules," he said. "The motto has been: 25 percent returns."

He added that for secure investments, rates of return were about four percent. In the quest for better performance, banks have taken more risks and pursued questionable business models. He compared it to people in cars who consistently drove over the speed limit and ignored the rules of the road.

"For a while, it might be OK. But sooner or later you're going to crash," he said.

"Deregulation orgy"

The Green Party has weighed in, calling for state intervention to prevent future crises. It wants to see the establishment of new regulatory guidelines for financial markets that would encourage transparency and put effective controls in place.

The "neo-liberal deregulation orgy" leads to chaos, Fritz Kuhn, the chair of the Green Party's parliamentary group, told the daily Neue Osnabrücker Zeitung.

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