Crisis worst since 1945 says German "wise man"

Crisis worst since 1945 says German "wise man"
Reuters - Saturday, March 22 10:09 am

BERLIN (Reuters) - The international financial system is in its worst crisis since World War Two, a senior economic adviser to the German government has told a newspaper.

Peter Bofinger, one of the so-called "wise men" who advise the government on economic matters, also told Bild am Sonntag there were clear downward risks to Europe's biggest economy.

However, investors should not worry about their savings as central banks would look after the affected banks "like a patient in intensive care", he told the paper, according to an excerpt released in an advance of publication.

To boost confidence in the markets, the state should do everything possible to ensure all institutions keep to the rules. Credit should also go through traditional banks more in future rather than through "exotic" go-betweens, he said.

The German government last week repeated it was sticking to its forecast for economic growth of 1.7 percent for this year despite the financial market turmoil.

In a separate interview with the Pasauer Neue Presse paper, Bofinger reiterated his call for an internationally-agreed spending programme in which Germany would take part.

Countries such as China, Russia, Japan, Germany, Switzerland and oil-producing nations which had in recent years enjoyed big balance of payments surpluses, should together consider how to make a contribution to revive the global economy.

However, the situation in other parts of the world was fundamentally different from that in the United States.

"If there is no credit bubble, it can't burst," he said.

The biggest danger for the German economy was the strength of the euro, said Bofinger, noting the European currency had gained about 10 percent compared to the dollar since the autumn.

"A 10 percent gain means half a percentage point less growth," he said.