China's consumption rate has fallen to 36pc of GDP from 48pc in the late 1990s. Academic libraries are bursting with PhD papers trying to explain why. Photo: Getty ImagesWhen America became the first casualty of the global credit bubble in 2007, Europe's political elites thought it had nothing to do with them.
By Ambrose Evans-Pritchard, in Beijing
6:30PM BST 18 Sep 2011
Even after Lehman and AIG collapsed a year later -- and Europe's economy crashed into slump -- it remained an article of faith in Berlin, Paris, and Rome that this was just fall-out from the Anglo-Saxon casino.
Few understood that the `China Effect' had engendered credit bubbles everywhere, and that Europe's variant was even more pernicious because euro-banks were more leveraged, with much greater liabilities, and the structure of EMU concentrated the damage on weaker states with no policy defence against sovereign collapse.
US Treasury Secretary Tim Geithner must have felt a twinge of Schadenfreude as he exhorted EU finance ministers in Poland to rescue their banks or face "catastrophe". The Germans and Austrians barked back at him, of course, but at least debate is joined.
Europe cannot blame America any longer, and if the US really were to slash spending right now -- as Germany's finance minister seems to want, like the disastrous Bruning, circa 1931 -- EMU would be in even deeper trouble.
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