1. Why Germany Can Be For
Europe What China is for The
United States of America
A THEORETICAL APPROACH
A presentation by Knut Linke, University of Latvia, at the
International Conference:
CURRENT ISSUES IN BUSINESS & SOCIETY
05-07 MAY, 2011
RIGA, LATVIA

2. Overview
 Current situation
 Current issues
 Financial situation
 Future development
 Possible solutions

3. Current situation
• Financial crisis since 2007 (up to 2011)
• Still existing i.e. in the US, Europe and other states [1]
• US goverment just release the unenployment rate for April
with a increase of 224.000 new unemployments (9% rate)
• Some states have allready recoverd from the crisis
• Some states have not recovered already from the
crisis [2]
• The US had the need to increase their debt to
provide internal stability to the country [3]

4. Current issue
• European Union needs to support several states
in the union with credits [4], [5]
• European Financial Stability Facility (EFSF)
• Bad Banks
• Available money for states in crisis had to be
increased several time during the last month [6]

5. Financial situation
• China supports the US by purchasing T-bonds
and supports with this the debt situation for the
US [6]
• Debt ration from the US reached allready 95% [7]
• US gets in the direction to loose his AAA rating [8]
• Germany (mainly) and other EU states supports
other countries in the EU which are in financial
problems (Greece, Portugal, Spain) [9], [10]

6. Consumer credits

7. Germany GDP (positive)

8. China GDP (positive)

9. Financial situation
• Exchange rate in the union is fix based on the Euro
• It is not possible to include different efficency and productivity
in the union anymore
• Exchange rate between China and US depends on a
special drawing right (SDR) [11]
• Fixend exchange rate between the US and China
• No possibility to decrease the cost for US goods to China or to
increase prices for goods from China, if the goverment in China
does not agree [12]

10. US GDP (negative)

11. Spain GDP (currently positive)

12. Refinancing of the debts
• China provides mainly the goods for the consumption
behavior in the states [13]
• China has a positive trade balance [14]
• Refinancing by supporting consumption in the US [15]
• Increasing of the available primary market in the EU [16]
• German goods are mainly requested and consumed in the
European union [16]
• Germany has a positive trade balance [17]
• Refinancing by supporting consumption in EU and by get in debts
to a lower percentage as the credits are given to other countries
[16], [18]

13. Future development
• Refinancing for Germany will be get harder on the market
• Germany will be still mainly the engine in Europe for growth over
the next years [19].
• China is re-thinking his financial support for the US [20]:
• „Let me be more positive: if I had an agreement with my
tailor that whatever money I pay him returns to me the
very same day as a loan, I would have no objection at all
to ordering more suits from him.”
• Adjustment of the international monetary system of
floating currencies and open markets [21].

14. Possible solution
• Re-thinking global consumption behaviour
• Re-think if China and Germany can always focus on a positive
trade balance
• Think global, act local
• A new Bretton Wood approach with a global currency to avoid
exchange issues [30], [31]
• Davos 2011
• Re-think pure profit orientation

15. References-1
 [1] Tomasz Konicz: Der erste große Klimaaufstand, http://www.heise.de/tp/r4/artikel/34/34174/1.html, 02/11/2011.
 [2] Reuters: Neuer Absurtz – Griechische Wirtschaft schrumpft dramatisch,
http://www.spiegel.de/wirtschaft/soziales/0,1518,711533,00.html, 02/12/2011.
 [3] Klaus Först: Staatsverschuldung Ausland: USA, 03/14/2011, http://www.staatsverschuldung.de/usa01.htm, 03/20/2011.
 [4] EFSF: An introduction to the European Financial Stability Facility, November 2010,
http://www.efsf.europa.eu/attachment/efsf-presentation-november-2010.pdf, 03/30/2011.
 [5] James K. Jackson: The Financial Crisis - Impact on the Response by the European Union, Congressional Research Service.
2009. P. 36.
 [6] Frankfurter Allgemeine Zeitung: Barroso will größeren Euro-Rettungsschirm - Merkel gegen Erweiterung, 01/12/2011,
http://www.faz.net/s/Rub3ADB8A210E754E748F42960CC7349BDF/Doc~E42830655163747CB814886EA51E33F18~ATpl~Ecom
mon~Scontent.html, 02/20/2011.
 [6] China Daily: China reduziert seinen Besitz an US-amerikanischen Staatsschulden, 02/10/2010,
http://german.china.org.cn/fokus/2010-02/20/content_19442349.htm, 02/15/2011.
 [7] Klaus Först: Staatsverschuldung Ausland: USA, 03/14/2011, http://www.staatsverschuldung.de/usa01.htm, 03/20/2011.
 [8] Matthew Brown: U.S., U.K. Move Closer to Losing Rating, Moody’s Says, 03/15/2011,
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8c_1vtVGzD8, 03/20/2011.
 [9] Peter Schelling: Im angeschlagenen Spanien schwindet die Hoffnung, 07/12/2010,
http://www.welt.de/wirtschaft/article8422194/Im-angeschlagenen-Spanien-schwindet-die-Hoffnung.html, 02/12/2011.

16. References-2
 [10] Frankfurter Allgemeine Zeitung: Barroso will größeren Euro-Rettungsschirm - Merkel gegen Erweiterung, 01/12/2011,
http://www.faz.net/s/Rub3ADB8A210E754E748F42960CC7349BDF/Doc~E42830655163747CB814886EA51E33F18~ATpl~Ecom
mon~Scontent.html, 02/20/2011.
 [11] Werner Antweiler. Special Drawing Rights. University of British Columbia, 2011, http://fx.sauder.ubc.ca/SDR.html,
01/27/2011.
 [12] Reuters: Währungsstreit – China wertet Yuan minimal auf, 10/13/2010,
http://www.spiegel.de/wirtschaft/soziales/0,1518,722804,00.html, 03/20/2011.
 [13] Frankfurter Allgemeine Zeitung: Dollar Staatsanleihen - China ist entsetzt über Amerikas Geldpolitik, 11/05/2010,
http://www.faz.net/s/Rub0E9EEF84AC1E4A389A8DC6C23161FE44/Doc~E7574FA1CEC7D4B13943B51EDEDB777B9~ATpl~Ecom
mon~Scontent.html, 03/20/2011.
 [14] Deutsche Presse Agentur: China macht Schulden wie nie, 03/05/2011, http://www.n-tv.de/politik/China-macht-Schulden-
wie-nie-article761065.html, 03/21/2011.
 [15] Christian Hoyer: USA in China starker verschuldet als erwartet, Börse Go, 03/01/2011, http://www.boerse-
go.de/nachricht/USA-in-China-staerker-verschuldet-als-erwartet-DOW-Jones-Industrial-Average-Index,a2478251.html,
03/20/2011.
 [16] Riva Froymovich, Patrick McGroarty, Nathalie Boschat, Costas Paris: Euro-Pakt steht, EFSF/ESM dürfen Anleihen am
Primärmarkt kaufen, Dow Jones Deutschland, http://www.dowjones.de/site/2011/03/euro-pakt-steht-efsesm-dürfen-anleien-
am-primärmarkt-kaufen.html, 03/20/2011.
 [17] Central Intelligence Agency: Public Debt, https://www.cia.gov/library/publications/the-world-
factbook/rankorder/2186rank.html, 03/21/2011.

17. References-3
 [18] Klaus Förster: Der Gläubiger: Wer leiht dem Staat so viel Geld?, Staatsverschuldung.de,
http://www.staatsverschuldung.de/glaeubiger.htm, 03/21/2011.
 [19] Michael Schuman: How Germany became the China of Europe, Time,
http://www.time.com/time/printout/0,8816,2053595,00.html, Stuttgart, 07/03/2011.
 [20] Michael P. Dooley, David Folkerts-Landau and Peter Garber: The revived Bretton Woods System, INTERNATIONAL JOURNAL
OF FINANCE AND ECONOMICS, 9: 307–313, 2004, National Bureau of Economic Research, USA
http://web.ku.edu/~intecon/Read/Dooley04.pdf, 03/31/2011.
 [21] Michael Dooley, David Folkerts-Landau, Peter Garber, International Financial Stability – Asia, Interest Rates, and the Dollar,
Deutsche Bank Global Marketes Research, 2005. P. 140.
 [22] Jörg Bibow: Global Imbalances, Bretton Woods II, and Euroland’s Role in All This, The Levy Economics Institute of Brad
College, Working Paper No. 486, December 2006, *Skidmore College, Saratoga Springs, NY. This paper was presented at the
conference “Euroland: Global Player or Global Drag?” in Lugano, Switzerland, on March 3, 2006.
 [23] Benjamin Cohen: Bretton Woods System, prepared for the Routledge Encyclopedia of International Political Economy,
http://www.polsci.ucsb.edu/faculty/cohen/inpress/bretton.html, 27.01.2011

18. THANK YOU FOR YOUR ATTENTION