The Latest Warning for Europe

The struggling euro zone received an early morning wake-up call on Wednesday with a warning that dithering by policy makers was exposing the region to a downward spiral of capital flight and economic decline. If that were not bad enough, a twice-yearly health check on world financial situation by International Monetary Fund warned that lack of action by eurozone could drag down global economy. “I.M.F calls for euro action to avert global catastrophe,” was among chilling headlines accompanied reports from Tokyo, where the I.M.F. released its regular update on global financial stability. I.M.F. economists praised Europeans for taking some steps toward tackling a chronic debt and banking crisis but said more action and greater speed was needed. “Merely muddling through also imposes increasingly higher costs, as unchecked forces of fragmentation continue to gather speed and undermine very foundations of the union,” the I.M.F. report said. Delays in resolving the crisis had fueled capital flight from banks on the hard-hit eurozone periphery and, in the worst-case scenario, European banks might be forced to sell as much as $4.5 trillion of assets if the crisis deepened, the report said. So, can this fiscal mess be fixed? Europeans bristled a year ago when Time magazine ran a front cover on the “Decline and Fall of Europe.” And David Cameron, British prime minister, on Wednesday warned members of his Conservative Party that countries like Britain would “sink or swim. Do or decline.” “The truth is, we’re in global race today,” he said at his party’s annual conference. “And that means an hour of reckoning for countries like ours.” His warning came after officials of the 27-member European Union expressed alarm at industrial decline in the Continent, where factory output had fallen to just 16% of gross domestic product. 3 million jobs have been lost as a result since start of the financial crisis. A four-point I.M.F. action plan, set out by José Viñals, head of the organization’s monetary department, included recapitalizing and restructuring European banks, and if necessary closing the weakest ones. Investors also needed to know that a bond-buying program by European financial authorities was credible, he said. Will these and other proposed measures be enough? Do you think there is still a chance for the old Continent to recover, or is it facing an unstoppable decline? 

Link: http://rendezvous.blogs.nytimes.com/2012/10/10/another-wake-up-call-for-europe/

Acerca de ignaciocovelo
Consultor Internacional

4 Responses to The Latest Warning for Europe

  1. Professor Uziel Nogueira says: One hypothesis and one comment about the euro zone crisis. The common currency is not in danger of disappearing. On the contrary, as the debt crisis is brought under control, the main problem will be a strong euro that chips away export competitiveness. Nonetheless, highly indebted and noncompetitive economies such as Greece, Portugal, Spain and Italy face years of budget constraint and decline of living standards. Ms Lagarde has lost her French composure when her institution, the IMF calls for ” euro action to avert global catastrophe.” This won’t happen and only brings loss of credibility to the MAIN multilateral financial institution responsible for dealing with the crisis.


    This apocalyptic type of warning is more suited to passionate Spanish politicians when pleading the ECB for money –even better with no strings attached — to bail out government finances and the banking system.

    http://rendezvous.blogs.nytimes.com/2012/10/10/another-wake-up-call-for-europe/

  2. The International Monetary Fund is set up to lend money to countries in crisis, but it is also supposed to serve as a sort of moral authority on all things economic – a bully pulpit to tell blunt truths, discuss the risks the world is facing. In practice, however, the agency has its own sort of code – economic diplo-speak that can smooth over almost any calamity and steer clear of offense. The pinnacle of the art form is the managing director’s press conference held before the start of the fund’s semiannual meetings. Herewith, a sampling of IMF head Christine Lagarde’s press briefing held Thursday in Tokyo, with questions paraphrased and alternate endings offered (…..)

    http://www.washingtonpost.com/business/economy/the-imfs-subtle-messages/2012/10/11/34b0a994-13e5-11e2-ba83-a7a396e6b2a7_story.html

  3. Suppose the growth of the U.S. economy slows to a trickle. I don’t mean in the next quarter or next year or even over the next decade. I mean from this time forth. That’s the prediction of Northwestern University economist Robert Gordon in a new paper that’s become the subject of widespread commentary. Gordon writes that three industrial revolutions have taken place over the past 250 years: the first centered on the steam engine and railroads; the second based on electric power, the internal combustion engine and indoor plumbing; and the third rooted in computers and the Internet. By substituting mechanical power for human power in the production process and by greatly speeding up transportation and communication, Gordon asserts, the second revolution raised productivity and wealth far more than did the other two. Indeed, U.S. productivity gains and the concomitant increase in wealth have slowed in recent decades from the levels the United States historically enjoyed. The Internet, Gordon writes, is increasing our ability to consume more than our ability to produce, while the gains of the second revolution — jet travel, urbanization, indoor temperature control — aren’t subject to much improvement. Accordingly, he argues, slow growth will be the norm for the rest of this still-new century. And because economic inequality will slow our progress still further, all but the wealthiest 1 percent will see the growth in their consumption slowed to an annual rate of just 0.2 percent — a level far lower than what we think of as the American norm, and incompatible with what we think of as the American dream. If Gordon is right — and he makes a plausible, if arguable, case — then the very essence of American exceptionalism will be undone. The United States is the world’s only nation whose lifespan is coterminous with the Industrial Revolution: We were born when growth was born and have long considered it our birthright. More than any other country, we have depended on growth to ease our economic conflicts. America without growth will perforce be a different nation, in which class conflict will be more open, enduring — and necessary.


    Gordon may be too pessimistic about the future of innovation, but his projections of the constraints that inequality, globalization and other encumbrances will place on growth seem completely plausible. If he’s onto something, decades of stagnation lie ahead. What will that mean for our nation and our politics? (…..)

    http://www.washingtonpost.com/opinions/harold-meyerson-challenge-to-the-rich-in-a-stagnant-future/2012/10/11/62fdc18e-1245-11e2-be82-c3411b7680a9_story.html

  4. (…..) Concern about dysfunctional politics and the processes of international cooperation is certainly warranted. But the best one can hope for from politics in any country is that it will drive rational responses to serious problems. If there is no consensus on the causes of or solutions to serious issues, it is unreasonable to ask a political system to implement forceful actions in a sustained way. Unfortunately, this is, to an important extent, the case regarding current economic difficulties, especially in the industrial world. While there is agreement on the need for more growth and job creation in the short run and on containing the accumulation of debt in the long run, there are deep differences of opinion both within and across countries as to how this can best be accomplished. What might be labeled the “orthodox view” attributes much of our current difficulty to excess borrowing by the public and private sectors, emphasizes the need for credibly containing debt accumulation over the long term, puts a premium on credibly austere fiscal and monetary policies and emphasizes the need for long-term structural measures rather than short-term demand-oriented steps to promote growth. The alternative “demand support view,” while recognizing the need to contain debt accumulation and avoid high inflation, emphasizes the need for steps to increase demand in the short run as a means of jump-starting economic growth and setting off a virtuous circle in which income growth, job creation and financial strengthening are mutually reinforcing. In recent years international economic dialogue has been defined by vacillation between these two views. At moments of particularly acute concern about growth, such as the spring of 2009 and the present moment, the IMF and many monetary and fiscal authorities tend to emphasize demand support views, but as soon as clouds start to lift orthodoxy reasserts itself and attention shifts to fiscal contraction and long-run financial hygiene. This is a dangerous cycle whatever your economic beliefs. Doctors who prescribe antibiotics warn their patients that they must complete the full course even if they feel much better quickly. Otherwise, they risk a recurrence of illness and, worse, the development of more antibiotic resistance. So it is with economic policy. Advocates of orthodoxy prize consistency. Those like me whose economic thinking emphasizes promoting demand worry that expansionary policies carried out for too short a time prove insufficient to kick-start growth while discrediting their own efficacy and reducing confidence. The Tokyo meetings may not have had immediate impact. But the IMF’s emphasis on the need to sustain demand and the recognition of the importance of avoiding lurches toward austerity can be critical for the medium term if they are sustained through the next round of economic fluctuations.

    http://www.washingtonpost.com/opinions/lawrence-summers-austerity-vs-demand–a-dangerous-economic-cycle/2012/10/14/2ae9fad4-1622-11e2-9855-71f2b202721b_story.html

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