Photographer: SeongJoon Cho/Bloomberg

World Elites Hearing the Message on Angst Over Globalization

  • Schaeuble says public has lost faith in economic leaders
  • Deutsche Bank’s struggles are adding to global challenges

Caretakers of the global economy are getting the message that the world may not trust them as much as it used to.

“More and more people don’t trust their elites. They don’t trust their economic leaders and they don’t trust their political leaders,” German Finance Minister Wolfgang Schaeuble said on a panel on Thursday at the annual meetings of the IMF and World Bank. “Look all over advanced economies -- the British referendum, the campaign in the United States. And if you look at Europe I can tell you endless stories. There’s a common denominator.”

Global finance chiefs and central bankers convening this week in Washington are coming to terms with a world roiled by public discontent over free trade, open markets and the cross-border movement of labor. The IMF has warned that rising tensions over globalization are threatening to derail a world recovery already lacking a reliable growth engine.

The decision in June by U.K. voters to leave the European Union highlighted opposition to immigration and trade. Now similar frustrations are coming to a boil in the U.S. presidential campaign, with Republican nominee Donald Trump looking to channel the anger of workers affected by trade with countries such as China and Mexico. Elections in Germany and France in 2017 could be the next front.

“The uncertainty around certain elections and political processes in the future is definitely a risk for the global economy,” said World Bank President Jim Yong Kim. “Uncertainty around the ultimate impact of Brexit, uncertainty around the U.S. election, uncertainty around elections in Europe.”

High Stakes

Schaeuble said the stakes are high in Europe. Fueled by resentment over a flood of refugees from Syria, anti-immigration parties have recently gained ground in countries including, Austria, France and Germany.

Critics of globalization often ignore the economic benefits of increased trade and integration, such as the prosperity that it has brought to emerging markets and developing countries, Bank of England Governor Mark Carney said on the panel with Schaeuble in Washington.

“We shouldn’t apologize for hundreds of millions of people being lifted out of poverty, and the opportunities created. But there are challenges with distribution,” he said.

Wealth Sharing

The challenge lies in spreading the wealth more widely at a time when the global economy is stuck in low gear. The IMF this week left its global outlook unchanged, warning that risks remain tilted to the downside. Aside from protectionism, risks include stagnation in advanced economies, a slowdown in China and tightening credit in emerging markets.

“There is a much greater recognition that we are in a low-for-long world, and nobody is going to be bailed out by some miraculous acceleration of growth elsewhere,” Carney said.

The struggles of Deutsche Bank AG are further complicating the puzzle for policymakers, who have been warned repeatedly of the eroding ability of central banks to boost growth, with interest rates already at or near rock bottom in most advanced economies.

The IMF warned this week that ultra-loose monetary policy is hurting financial institutions that rely on higher rates to turn a profit, such as banks and insurers. The squeeze comes at a bad time for Deutsche Bank, which has struggled to reverse a slide in its share price amid concerns over whether it has sufficient capital to meet mounting legal costs.

Deutsche Bank

“Deutsche Bank, like many other banks, has to look at its business model, which I’m sure it does because it’s in the process of selling assets here and there,” IMF Managing Director Christine Lagarde told Bloomberg Television in an interview on Thursday. “It has to look at its long-term profitability given the lower-bound interest rates we have around the world and probably for longer than many expect and decide what size it wants to have and how it wants to strengthen its whole balance sheet.”

People’s Bank of China Deputy Governor Yi Gang, during Thursday’s panel, expressed optimism that the current surge of unrest over globalization is only temporary.

“If you look at the long history, you see that this kind of phenomenon can only last for a few years,” he said. “Maybe three years later, five years later, people will continue to build the consensus of free trade and globalization. That is correct direction.”

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