‘Another global financial crisis looming’

10 Oct 17

The escalating levels of debt and growth of liquidity across the world could cause another financial crisis, the departing German finance minister has warned. 

Wolfgang Schäuble has said the financial world is in danger of “encouraging new bubbles to form”, as a result of money pumped into markets by central banks.

“Economists all over the world are concerned about the increased risks arising from the accumulation of more and more liquidity and the growth of public and private debt. I myself am concerned about this, too,” he told the Financial Times.

These concerns were also raised earlier last week by International Monetary Fund managing director Christine Lagarde, who said there are “threats on the horizon” for the world economy due to rising debt in many countries, China’s credit expansion and excessive risk-taking in financial markets.

Schäuble will leave his role as the finance minister to be the new president of the Bundestag (Germany’s parliament). 

He has held the role since 2009 and has strongly advocated fiscal rectitude and policy responses to the euro debt crisis.

Schäuble is a supporter of austerity and told the FT it was “strictly speaking, an Anglo-Saxon way of describing a solid financial policy, which doesn’t necessarily see more, or higher deficits as a good thing”.

The World Bank also warned on deficits and debt levels in its economic update earlier this year.

Germany’s finance ministry has been resistant to a move to an accruals system of accounting, as examined by Public Finance International in March, despite a strong economy and fiscal prudence.

The country has run balanced budgets since 2014 with Schäuble at the financial helm. 

In 2008 the world economy crashed and is considered to be the worst global financial crisis since The Great Depression of the 1930s. It began in 2007 with a crisis in the subprime mortgage market in the US. 

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