In: Economics
How did the government of each of these three (03) countries respond to the crisis? USA, UK, and Germany
What new regulations did the government pass in each country?
What regulations became stricter in each country?
What coordinated policies and regulations (with other countries) if any were pursued by these countries?
What specific policies did the government implement in each country?
The complex nature of the banking system that had evolved before the crisis hit made a recovery difficult. It meant that there had been a serious miscalculation by regulators about the risk and reward policy that was endemic throughout the UK banking system. The causes of the crisis are well documented. It is important to emphasise how the government response helped the UK withstand the credit crunch in a more effective way than the other EU countries and the US.
One of the initial government reactions was to request that Northern Rock reduced the size of its loan book. This was in contradiction to requests to other banks to continue lending to small companies and individuals. The major difference was the emphasis on only lending to less risky borrowers. The government handled the ‘bad book’ of mortgages at Northern Rock and other banks differently than ‘normal’ mortgages and new business.The government took further measures including interest rate management and quantitative easing. In addition, they put a fiscal stimulus in place to try to get the economy back into shape. The government placed conditions on the banks receiving public funds, as they wanted to ensure that there was no competitive edge for the banks they nationalised. The UK government’s response to the financial meltdown has proved to be effective.
Germany - To counter the crisis, the German government has tied two major stimulus packages and a law to stabilise the financial and banking sector has passed the parliament. The stimulus packages tied to counter the crisis aim at shoring up domestic demand to make up for the loss in external demand. The major measures to counter the crisis in the field of social security are partial unemployment benefits or reduced working hour compensation. This instrument has so far been successful in avoiding full unemplyoment on a large scale, and has in international comparison received good feedback.Additionally, the evaporated reserves of the public employment agency might become a problem in the years to come. In order to make up for its losses the contribution rate might have to be increased again in the medium term, otherwise the scheme might not be able to fulfil its legal obligations. With a view to pensions, the OECD study mentioned earlier highlights the fact that public PAYG schemes are by far not as bad as their reputation. The crisis might thus also serve as an incentive to rethink the privatization tendencies of the past decade and invest in a supporting public pension system for the future. Generally, attention should be paid to the sustainability of social security financing in the aftermath of the crisis. This crisis proved the advantage of comprehensive social security, which can be flexibly extended according to the needs. Therefore, the cuts in the contribution rates should not be used as a pretext for cuts in benefits. Instead, this experience may also inform future debates on the German welfare state and the social market economy with a view to desirable structures and benefits rather than the mere expenses.