On January 15, GMF and Bruegel hosted an event featuring GMF Transatlantic Fellow Joe Quinlan with comments from Bruegel Director Jean Pisani-Ferry in Brussels. The discussion focused on recent economic developments in the United States, Europe, and Asia, and likely developments in the future.
After introductory remarks, Quinlan provided for an assessment of the development of the financial crisis, placing emphasis on the flaws of pre-crisis predictions, which were based on the presumption of limited real equity losses in the United States and a U.S. financial crisis that was decoupled from the global economy. To the contrary, the financial crisis had spread around the globe and was now unfolding its full impact on Europe, China, India, and Russia, whereas the global economy was not to be saved by the BRICs but by concerted transatlantic action. Quinlan voiced a cautious view on the potential of the G20 initiative to result in tangible outcomes. He raised concerns regarding the likely rise of protectionist policies around the globe. In his comments, Jean Pisani-Ferry broadly affirmed Quinlan's assessment. However, Pisani-Ferry articulated hopes that the substantial second German stimulus package will do its part to boost European economic activity in 2009.
During the discussion, participants gave their views on developments in the United States and China. GMF Transatlantic Fellow Bruce Stokes provided an analysis of U.S. developments. In his view, the proposed tax cuts were an economically wasteful and unsound instrument to increase domestic demand, but they ensured bipartisan and public support for the stimulus package. Further economic stimulus was expected to have a strong "buy America" dimension, in order to limit its impact to the national economy. On U.S. trade policy, Stokes voiced the expectation that the Obama administration will, at best, pause trade liberalization initiatives and promote the stronger enforcement of trade laws. He argued that the worst case scenario with regard to U.S. trade policy was "not that bad," given that only 1 percent of trade was now subject to restrictions compared to 8 percent in the 1980s. This number was never going to be reached in the current crisis.
Zhang Niansheng provided the participants with anecdotal evidence of the economic downturn in China and the very limited social security receipts of laid-off Chinese workers. Zhang's remarks were underscored by David Fouquet's observation and further expectation of domestic tensions and civil unrest caused by the closure of thousands of factories. Fredrik Erixon pointed out that it was the drop in Chinese imports in December (-21.3 percent), rather than the latest drop in exports (-2.8 percent) which gave a good indication of the decelerating activity of the Chinese economy in the months to come. Quinlan commented that China found itself in a "growth recession." The Chinese employment market required a growth of 8 percent compared to the 2009 forecast of 4 percent.