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Right Man for the Job

DW staff (sac)
November 5, 2008

Leading German economists say US President-elect Barack Obama is the right man to tackle the worldwide economic crisis. But he has his work cut out for him, and global markets reacted uncertainly to his victory.

A trader on the floor of the New York Stock Exchange
Traders hope Obama's win will help boost economic recoveryImage: AP

President-elect Barack Obama will be able to restore the credibility of the global financial system, said Klaus Zimmermann, head of the German Institute for Economic Research DIW in Berlin.

"A lack of trust and credibility are at the heart of the current financial crisis" Zimmermann said in a statement."Throughout the presidential campaign, Barack Obama has demonstrated both trustworthiness and a sound understanding of economic issues."

Economists have said those are decisive factors in restoring confidence in the battered market economy.

Barack Obama addresses the AFL-CIO's annual convention in Chicago
Obama has learned a lot about the US economy during his campaignImage: AP

Zimmermann said Obama had shown willingness to listen and learn, referring to the highly qualified researchers he has advising him on economic matters.

"I am expecting Barack Obama to adopt unorthodox and unconventional policy initiatives," Zimmermann said. "His approach to politics is characterized by pragmatism and cooperation."

However, for Europe and for Germany in particular, this meant that the new US government would expect more significant commitment in terms of security policy from its allies, he said.

Obama has to cope with elementary economic crisis

The new US president faces economic and political problems which are extremely difficult to resolve, Zimmermann said.

"His vision of a more just and equitable society is in danger of being crushed by the harsh realities of the financial crises and its disastrous effect on the budget and the US economy," he added.

Hans-Werner Sinn, head of the Munich-based IFO economic research institute, said Obama faced tough challenges.

"America is in an elementary crisis," Sinn said in an interview with Reuters television on Wednesday.

Several VISA credit cards
Americans need to stop buying on creditImage: AP

Americans had lived beyond their means for the past 10 years, he said.

"They allowed themselves a standard of consumption, which wasn't even covered in real terms," Sinn said. During this time, securities and certificates worldwide were sold that proved to be worthless.

This should no longer be possible.

"Americans are going to have to pay for the lovely goods they obtain from the rest of the world with real merchandise which they deliver themselves instead of with certificates," he said. "Or they'll have to sell their family silver -- that is their stocks."

Living on credit could also be reduced by less consumption.

"So they would have to tighten their belt," Sinn said. This would also affect export world champion Germany as a major exporter to America, he said.

European markets down after Obama victory

The euphoria and sense of optimism which has gripped the world following Obama's historic and sweeping election victory has not impressed the markets. European markets opened on Wednesday with slight losses with no sign of a turnaround in the economic trend. Germany's Dax was about 1.5 percent lower, London's FTSE 100 and Paris' CAC 40 each fell more than 2 percent.

With a worldwide threat of recession, many analysts are calling the current situation the greatest economic challenge since the Great Depression.

Markets had perked up on Tuesday, with the Dow Jones Industrial Average boosted by Obama's expected victory. Brokers said trading had been pushed by the hope for political change in the United States. But worldwide gains have turned out to have been only a brief sigh of relief after the long US presidential campaign.

Asian markets, on the other hand, continued their upward trend. Tokyo's Nikkei Index closed up 4.46 percent at 9,521 points on Wednesday. The Hang Seng Index in Hong Kong ended up 3.7 percent at 14,840 points.

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