United States automakers renewed pleas on Wednesday for a government bailout to avert a “catastrophic collapse” of the economy, but the eurozone dismissed fears that it faced the spectre of deflation.
General Motors (GM), Ford and Chrysler return to Capitol Hill a day after issuing the doomsday prediction of what would happen if the government does not come through with $25-billion in loans.
But a speedy passage seemed unlikely amid opposition from the government and sceptical lawmakers. US Treasury Secretary Henry Paulson has ruled out dipping into a giant Wall Street bailout package to help the struggling US automakers.
Both GM and Chrysler have warned they could go bust without immediate aid.
Ford is in better shape, but warned that a failure at its competitors would devastate the industry’s interdependent supply base and potentially grind production to a halt at all US auto plants.
That would result in the loss of three million jobs and more than $156-billion in government tax revenues in the first year, a recent study found.
German car maker Opel, a unit of US giant GM, will cut production by about 10% next year and is mulling a 30-hour work week, a director told the Frankfurter Allgemeine Zeitung newspaper.
Opel had urged the German government to guarantee loans it might need if the US parent group goes bankrupt but Chancellor Angela Merkel has said she will make a decision before the end of the year.
Despite the gloom pervading the auto sector in leading economies, the head of the European Central Bank, Jean-Claude Trichet, said he had not seen signs of deflation — a fall in prices that can stifle growth — in the eurozone.
“I don’t see yet trends of deflation in the euro area,” he said, adding that fiscal stimulus plans were a good way to lift the economy for those who could afford it.
On Wednesday, Trichet urged the private sector to play an “essential role” in helping to end the world economy’s most turbulent period since World War II.
He underscored that the fall-out was “solvable by joint efforts of authorities and certainly central banks, governments and also the private sector has an essential role to play of course to get out of that situation”.
The head of the International Monetary Fund, Dominique Strauss-Kahn, has said up to 2% of the world’s income, or $1,2-trillion, should be spent on reviving the global economy.
But the European Central Bank’s top economist has warned governments not to repeat past mistakes by trying to resolve the global financial crisis with short-term spending as in the aftermath of the 1970s oil crisis.
“There is a substantial risk that the mistakes of the 1970s will be repeated, which led to an unprecedented increase in government liabilities and ultimately in taxes, thereby hampering economic growth,” Juergen Stark said.
“I really cannot see why discretionary fiscal policies, which have been proven to be ineffective in the past, should work this time,” he added. — AFP