Germany

In Berlin, Chancellor Angela Merkel announced that the German government has introduced what she calls a “bridge” for the economy of 50 billion euros ($65 billion U.S. dollars) in investment in 2009 and 2010. The stimulus package is geared towards protecting jobs. Germany, with the largest European economy, recently put into affect a bank rescue program with resources upwards of 500 billion Euro ($638.9 billion U.S. dollars). Economy Minister Michael Glos stated that the objective of the plan is to mobilize euros and secure nearly one million jobs. Despite the fact that Germany’s unemployment rate fell to a new 16-year low of 7.5% in October, many are worried that the financial crisis will spur higher unemployment as the country’s firms cut back. The latest economic results indicate that Germany is entering a recession as the GDP and other economic indicators point to a contraction. Domestic orders for goods declined over 4%, while orders for goods outside of Germany declined over 11%. Exports are expected to fall to 2.5 % in 2009, a 15-year low. Berlin has slashed its 2009 growth forecast to just 0.2%. Some economists expected economic growth to slow to 1.7% in 2008 and 1.1% in 2009, a low point for the forecast period– with a slight uptick in 2010, due primarily from high rates of domestic demand growth. Other economists providing analysis for the country believe prospects for Germany are better than for most other European countries because of its low household indebtedness and the absence of a recent property boom, which reduces the likelihood of sharp falls in property prices.

Last Monday, Germany’s widely-watched Ifo Institute for Economic Research business sentiment indicator showed business confidence dropping in October to its lowest point in more than five years.

The United Kingdom

In the UK, Prime Minister Gordon Brown is stepping up efforts to encourage the country’s banks to lend funds. The Bank of England’s official rate was cut from 4.5% to 3% on Thursday. The Libor rate (the London setter of interest in the wholesale money market, as set by the demand and supply of money that banks lend to each other) has fallen since the cut. Brown recently met with bank officials in an effort to convince them to take the lead and inject money into the economy by lending to businesses and consumers. As a response to the government effort, two lenders, Nationwide Building Society and the RBS/NatWest group have recently reduced their lending rates. Lloyds of London and TSB institutions have also reduced their rates. Major banks expected to eventually participate include: Barclays, the Royal Bank of Scotland, and Standard Chartered. It is understood that the banks have limited funds and are taking a conservative approach towards their lending practices to assure little or no default situations.

The effort to get banks lending and pass along interest rate reductions comes after the UK announcement nearly 30 days ago of a financial rescue plan of 500 billion that included, in a privatization effort, the government’s purchase of bank shares. The government also provided a guarantee to underwrite 250 billion euros ($319 billion U.S. dollars) of bank debt if any of the primary banks slip into insolvency, all in an effort to improve confidence in the market.

In other UK-related moves, British Prime Minister Gordon Brown appealed to Saudi Arabia. Kuwait, and Qatar, to help finance the International Monetary Fund, part of a series of moves to ensure that the IMF can bail out economies hit by a global financial crisis. A host of countries already affected by the economic crisis are appealing to the IMF for emergency funds to avoid insolvency. The IMF, which had $201 billion in loanable funds as of August 28, has offered money to Iceland, Ukraine, Hungary and Belarus. The British prime minister urged countries with large financial resources, such as oil-producing Gulf states, to contribute to a new International Monetary Fund facility to help vulnerable economies.

China

China cut interest rates on Wednesday for the third time in two months to spur an effort to avoid economic decline. China represents the world’s fourth-largest economy. Its GDP has been upwards of 10% for the most recent years. This growth has attracted major foreign investment. The central bank of China cut its repo rate, the main short-term lending rate, by 0.5% to 7.5% and banks’ cash reserve requirements by 1% to 5.5%. Government officials fear that a downturn in its export markets could hurt the economy. China’s real GDP growth is expected to decline but when compared to other countries it will remain impressive, easing down from 11.9% in 2007 to 8.2% in 2012. Economic analysts predict domestic demand to remain strong in 2009, throughout 2013, fueled by consumption, strong wage growth, despite an expected fall in net exports.

France

In France many companies have voiced their discontent to government agencies over their inability to obtain credit for their businesses, a vital necessity, despite their company’s financial good health. In multiple statements, French Economy Minister Christine Lagarde warned that banks that have benefited from public bailouts have a responsibility not to cut off lending to companies struggling in the financial crisis. Threatening to take more measures if immediate lending does not begin to be detected, the Economy Minister commented that banks have not done enough to unlock lending to businesses. On Thursday, President Nicolas Sarkozy threatened public exposure to institutions that did not “accept their responsibilities.” Sarkozy said a “moral pact” bound banks helped out by the state not to hoard the liquidity released in public rescue programs but to keep up lending. France has earmarked over 360 billion euros ($460 billion) to prop up the financial sector as part of a global effort to help banks ride out the worst financial crisis since the Great Depression. Economic Officials believe that rising unemployment, a drop in consumer confidence, and limited credit will force France into a recession by the third quarter of the year.

As early as October of 2008, some economic analysts predicted Real Gross Domestic Product (GDP) to contract in 2009, as consumer spending and investment crawl to stagnation, and external demand for their goods and services weakens. Other reports predicted that economic activity should recover gradually from the second half of 2009 and into 2010, on the assumption of more stable conditions in financial markets, lower inflation and interest rates are prevalent. France’s economy was expected to grow by 2%, but now uncertainty in the financial markets make that expectation doubtful.