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Belinda Cooper: Letter from Berlin — Just the Usual Economic Woes, Plus Culture

At the train station near where I stay in Berlin, there’s a snack vending machine, one that I can only imagine here in Germany. In among the colorfully-packaged chocolates and chips waiting in neat lines, there’s a row of thin, yellow booklets, each one different, that you can buy for one euro. Press the button, and out comes literature—stories and poems, mainly by little-known authors, published by SuKultur, a small Berlin publishing house. Some of them are quite good. That's commuting in Berlin: You can buy a snack, or literature. Reading material was pretty important on the train this past week, because the S-Bahn (Berlin’s overground city train, a part of the German national railway system that also receives subsidies from the city government) was unusually crowded and uncomfortable—a result of an inspection that found many of the cars’ wheels in urgent need of repair and immediately took hundreds of them out of commission. They had been neglected, it seems, due to cost-cutting measures: a reduction in personnel and equipment aimed primarily at increasing the railway’s profitability. This time it wasn’t Berlin’s fault, but the city is chronically short of money and is also saving where it can. Before the fall of the Berlin Wall, West Berlin was a paradox—a heavily subsidized showcase for capitalism—and it’s never quite seemed to get the hang of frugality since the subsidies ended. As the S-Bahn’s top managers were being fired, the papers were reporting that Berlin was about to increase its outlays for culture by 16 million euros (certainly a lovely commentary on priorities). I can’t speak for Frankfurt, where the stock market is, or for the industrial centers of western Germany, where plants are closing or going to government-subsidized, part-time work, but in the capital of Berlin, which has little industry to speak of and has been claiming bankruptcy for years, no one’s really talking about the economy. (A friend who has recently traveled in western Germany assures me that the situation is no different in cities like Hamburg and Munich.) There are various theories about this, but to me, it’s not too hard to explain. As we’ve all heard by now, Germany actually has a social safety net. Despite reductions in recent years, it’s still the case that no German has to go without health insurance after losing a job, people’s pensions are not privatized, and since Germans tend to rent rather than own—a result of tenant-friendly laws and good public housing—there isn’t much danger of losing your home. People are not suffering personally any more than usual, unlike Americans. The social welfare system works, so far.

THE INDEX — July 10, 2009


Jonathan Power: Tooth Fairies and the Economic Crisis

So far, not much seems to be working when it comes to stemming our great economic and financial crisis. Could tooth fairies help? But before the fantastical, a bit of history is needed: some experts are considering a major expansion of the resources of the International Monetary Fund (IMF) by a method envisaged at its founding in 1944 by the great economist John Maynard Keynes. The mechanism for doing this is to expand the issue of what the IMF calls "Special Drawing Rights" (SDRs), or what Keynes considered to be “paper gold.” This is one of the important items on the agenda at Thursday's summit of the G-20 in London. SDRs could prove to be a major contribution to curing the world's crisis of liquidity and lack of demand. Moreover, some members of the G-20 seem willing to support the revolutionary suggestion made earlier this month by Zhou Xiaochuan, the boss of China's central bank, to use SDRs as a worldwide reserve currency to replace the dollar and the euro, at present the two most important world reserve currencies, although US Treasury Secretary Tim Geithner suggested last week that was not likely anytime soon. What do fairies have to do with it? SDR's are created almost literally at the stroke of a pen—an accounting transaction within a ledger of accounts which can then be used to bolster the financial reserves of any IMF member country. And, to sweeten the pot, the fairies don't even require a tooth. The IMF can allocate these SDRs to any of its members—especially those in desperate need—giving these countries a costless asset for which interest is neither earned nor paid. Recipient countries, with important provisos, can use these SDRs to purchase the currencies of other IMF members that are in a healthier financial state than they are. Richer countries can also use them as a form of aid to poorer countries. So far, there have been two major allocations of SDRs—one in 1970-72 and the second in 1979-81. In 1997, the board of the IMF agreed, in principle, on a much larger allocation—double the total of the two allocations before. Three-fifths of the member states, however, had to agree to this before the IMF could start using this new allocation. So far, over 130 members have signed on; the only thing holding it up is U.S. approval. Thus, with another stroke of the pen, the United States could put this allocation into effect. It would have a powerful stimulating effect, especially for those countries at the bottom of the heap.



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