The Latest Warning for Europe
11/10/2012 4 comentarios
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?