Stocks soared yesterday around the world after the Fed coordinated action to make sure troubled European banks could access dollars, and the financial crisis has eased — perhaps until Europe’s toxic mixture of political impasse and slow reaction time takes the world back to the edge of the abyss.At Via Meadia we are still wondering whether 2011 could really be the second coming of 1931. That was the year that put the Great in the Great Depression, and the disaster was centered in Europe. The continent had its very own full-scale financial crisis: reparation payments and war debts collapsed, and the rattled world sank into a new wave of protectionism.We have been flirting with the financial meltdown; is protectionism next? The FT reports:
Renewed global economic weakness is threatening a fresh wave of protectionism, compounding government restraints on international commerce introduced earlier in the worldwide financial crisis, according to the EU’s top trade official…Mr De Gucht [the EU Trade Commissioner], in an interview with the FT on Monday, said only 17 per cent of the worldwide total of supposedly short-term protectionist measures put in place in the first phase of the global financial crisis had been reversed. “It is true that in the 2008-2009 crisis there was not a significant rise in protectionism,” he said in an interview. “But … the protectionist measures taken during that time and were supposed to disappear – most of them are still in force … Now you see a second wave of protectionism that is more structural.”
That the Obama administration has launched new rounds of trade talks with its key Pacific and Atlantic partners suggests that not everybody wants to go down the 1930s road again. But the gravitational pull of old ideas and old habits is strong, and if the euro goes down and takes the world economy with it, the political pressure for protectionism would be hard to resist in emerging and developed countries alike.We are nowhere near out of these woods.