What could Europe and the world do to avoid a recession?
Laaska News Nov. 11,2011
By Chong Dahai, Zhang Zhengfu
BRUSSELS, Nov 10. (Xinhua) — EU’s recent autumn economic forecast hints standstill in European economy in the near term. The recent hike in Italian government bond yields also raise fears of another round of debt crisis.
And a lack of concrete measures at the recent G20 summit to maintain sustainable growth and address major problems the world is facing also adds uncertainties. It seems both Europe and the world need to do more to avoid another possible recession.
WHAT PROBLEMS EUROPE AND THE WORLD FACE?
“For the EU, there are a range of challenges but they do not necessarily affect all countries in the same way.” Said Fabian Zuleeg, chief economist with European Policy Center (EPC), a famous European thinktank based in Brussels.
He cited several major challenges Europe face, i.e. the long term impact of the crisis, the need to improve competitiveness and renew European economies to deal with global competition, the need to transform to a greener economy, inequalities and social exclusion and rising resource prices, etc.
What makes European situation complicated is that financial sector seems to be affected, and whether European leaders have successfully prevented collapse of Dexia into a domino effect is yet to be seen, as we heard from time to time news about European banks’ exposure to the sovereign debts of Greek and other “PIIGS” nations of Portugal, Italy Ireland and Spain, which were considered weaker economically following the financial crisis.
“The long-term impact of the crisis includes debt levels and ongoing difficulties in the financial sector. The crisis has also aggrevated Europe’s dual growth problem: low overall growth and divergence within the Eurozone.” Explained Zuleeg.
While Europe seems suffer in the mire of debt crisis, other major economies’ situation is not good either. IMF downgraded the United States’ economic forecast to 1.5 percent for 2011 and 1.8 percent for 2012.
Rober Zoellick, President of the Wrold Bank, also warned the world was closer to the risk of “double dip.” He cited stagnant U.S. labor market, declining consumer confidence, alongside growing doubt over European situation as risks that may cause U.S. economic contraction.
And emerging economies also face serious problems of their own. Banco Central do Brasil lowered key interest rate two times since August, hinting the nations is facing danger of contraction. And China, the world’s largest developing nation, also sees slowdown in economic growth in the third quarter, as well as shrinking export, a bearish signal for China who relies heavily on export for economic growth.
COORDINATION? FIRST THINGS FIRST
The recent G20 summit in Cannes, France called for coordinated action in maintaining a sustainable and balanced economic growth.
G20 finance ministers are mulling a plan to refinance IMF so as to provide more resource for eurozone in the next meeting due February 2012.
Zuleeg believes efforts should be made to jointly reform global financial institutions and the financial sector and effective multilateralism should be shored up.
“Those countries with excess reserves should also consider investment in the weaker eurozone countries but so far there is little willingness though admittedly the key actions to fix the Eurozone crisis have to take part within the EU,” he said.
But Europe seems in dilemma — to stimulate economy means more government spending and higher deficit, to keep deficit low means slower economic growth, and with rising yields in government bonds in some nations, those already bought bonds may face a fate of devaluation.
Daniel Gros, director of Center for European Policy Studies, a famous European thinktank, also pointed out that a third nation’s assistance could do more harm than good in the eurozone, saying it might probably strengthen the euro and thus make a recovery in the periphery even more difficult.
“Unlike the U.S., the eurozone does not have an external deficit that needs to be financed. Its current account is balanced, so there are enough savings within the monetary union to finance all public deficits. The problem is one of distribution.” Said Gros.
Since Europe has enough resource to address the problem, the most urgent thing is to restore confidence.
Just like Chinese President Hu Jintao has pointed out: “European economic problems should be mainly solved by the Europe itself.” All coordinated efforts should be based on that.