Banking crises amid a global slowdown
The world’s economy is growing at a slower pace and governments across the globe are building tariff barriers to protect their domestic industries, even as they snarl at each other demanding trade concession. No wonder India’s exports fell by a massive 9.7% last month, setting off alarm bells at Raisina Hill. Adding to those worries are the banking crises unfolding at two corners of the globe.
At one end, Deutsche Bank—Germany’s largest bank and a key player in all European recovery efforts—is facing many issues. In China, Baoshang Bank has collapsed, an unheard-of occurrence in the country’s tightly-controlled economy. In Germany, the once-proud Deutsche Bank has remained fragile ever since the Wall Street crash of 2008. It has tried to regain a healthy balance sheet by aggressively breaking rules.
But that has not helped it much. In a restructuring move now initiated, the bank is shedding staff worldwide and shifting some USD 83 billion of risk-weighted assets to a ‘bad bank’ to appear healthy, though with a lower capital base. If the bank still collapses, it can pull down dozens of European banks, negating all growth gains since the Lehman Brothers crisis of 2008.
Meanwhile, Beijing borrowed trillions of dollars to support China’s growth since the 2008 crisis. So did local governments and corporates. The net result is that China’s state and private debt now total an astounding $34 trillion. Observers see the Baoshang moment as the tip of a crisis which might scar not only China but all nations that do business with it.
All this does not bode well for global growth as well as India’s ability to export abroad. Under the circumstances, India would do well to concentrate more on growing its domestic market and taking stock of its own debt situation and avoid the mistakes other nations have already made. The Indian government’s debt-to-GDP ratio already stands at 69% of the GDP, while total state and private debt in India has grown at some 13.3% annually over the last five years to reach Rs 253 lakh crore.