Dominique Strauss-Kahn delivered a speech today in Beijing, lambasting the leadership of Europe for its “state of denial” about the severity of the credit crisis. It seems that an angry DSK is speaking his mind now that he has no official capacity and can lash out at European leaders. The former IMF managing director was well received by his Chinese hosts who showed their appreciation for all the work DSK did to elevate the status of the Chinese in the IMF.
DSK was adamant that the EUROPEAN CRISIS was a three-pronged problem: A DEBT CRISIS; A GROWTH CRISIS; and A LEADERSHIP CRISIS. The CRISIS IN EUROPE is further aggravated by the fact that the European leaders seem that time is not of the essence where DSK believes time is not a friend of the Eurocrats. It is of the utmost importance that the CRISIS be dealt with now and not later. Nothing like a dishonored and wounded leader to finally speak the truth
***Tomorrow’s Financial Times runs two interesting articles. Martin Feldstein has a piece in which he pushes the need for a weaker EURO as a way to help aid the peripheries to get back to current account balance. Feldstein suggests a need for a further 20% devaluation of the EURO to help Spain and Italy right the terrible ship of their trade situation. The problem is that Professor Feldstein doesn’t explain how he came to think that will be the magic elixir to turn the situation.
If the EURO DEPRECIATED 20%, Germany would create severe problems for U.S. and Japanese exporters. The Japanese auto sector is already being outsold by the Germans and the U.S. export sector has been one of the few positive elements of the U.S. economy. Also, Europe, the largest market for China, a 20% depreciation of the EURO would be a problem for a Chinese economy that is beginning to soften. While Feldstein’s remedy may make economic sense, the political reality of the fragile global situation is going to be a much tougher issue to resolve.