Abstract:

The global economic crisis unfolded since 2008 at a surprising and accelerating speed. The crisis has serious implications for unemployment in China and in the European Union (EU). Important aspects of the crisis are: the collapse of global trade and world–wide over–capacities of industrial production. These developments call now for a renunciation of old beliefs in supply–side economics and for a new awareness of the great importance of maintaining an appropriate level of macroeconomic demand for output. Surprisingly, the Chinese authorities seem to be more ready than the EU authorities to follow such "Keynesian" policies in the wake of this crisis. There are several reasons for this difference.

(1) EU member countries have more "automatic stabilizers" than China due to their more extended systems of social protection in the case of unemployment.

(2) Some EU member countries (apart from Germany) are less exposed to the collapse of world trade than China. Therefore they do not have to compensate quite so much for the global decline in exports.

(3) Due to past economic political agenda setting, EU member countries are strongly committed to elaborate and formalized supply–side oriented economic political processes. An important relevant paradigmis the "Lisbon agenda" which hitherto shaped strongly their "economic political guidelines". The EU did react to the new crisis by implementing in 2009 a "European Economic Recovery Program" (EERP) with considerable commitment to "fiscal stimuli". But there is emphasis that the implementation of the EERP should be connected to the established "Lisbon agenda". Thus the EU has a particularly long lasting after–effect of the supply oriented convictions stemming from an old economic political scenario which was quite different from the present one.

(4) A further reason why economic political reactions to the global economic crisis differ between China and the EU might lie in different priorities concerning a new global financial system. Although China is also affcted by the “toxic debts” coming mostly from financial firms which were treated too leniently due to influences from the USA and from Great Britain, it is rather the Europeans – and among them in particular the Germans – who press for a new system of global financial oversight. European reluctance to follow American pressure for more European “fiscal stimulus” could be seen as an attempt to motivate the USA to agree to establish stricter financial oversight on a global level. The distant hope behind such manoeuvering of the Europeans could be that eventually a “World Financial Organisation” (WFO) might be set up parallel to the World Trade Organization (WTO). The main aim of China in the field of a global financial system reform is different: China has the specific problem of particularly large holdings of foreign currency reserves which are denominated in US–dollars. Due to worries about the future worth of the US–dollar denominated reserves, Bank of China Governor Zhou Xiaochan called in March 2009 for the replacement of the US–dollar as an international reserve currency by a new international financial instrument which could be similar to the “Special Drawing Rights (SDR) of the IMF.

The differences in response to the current crisis might perpetuate the crisis and lead to protracted unemployment problems because of a current lack of global economic political leadership. The USA was intent to lead the world into economic recovery by “stimulus packages” and China is the most important partner in this endeavour. The Keynesian multiplier effects of such demand effects are visible but there are doubts about the fiscal sustainability of maintaining such stimuli and about the viability of the old financial system. Unresolved leadership problems existed also at the time of the Great Depression of the last century and they seriously prolonged the economic downturn at that time. A clear consciousness of such leadership problems and a cooperative spirit in their resolution might be an important element in bringing about a lasting global economic recovery.