GLOBAL ECO

BEWARE OF AILING GLOBAL ECONOMY…

ACCORDING TO THE ECONOMIST, « THE CRISIS IN THE EURO AREA IS TURNING INTO A PANIC AND DRAGGING THE ZONE INTO RECESSION » AND THE RISK THAT THE CURRENCY DISINTEGRATES IS REPORTED TO BE ALARMINGLY HIGH.

AT THE SAME TIME, OCDE CALLS FOR URGENT ACTION TO BOOST AILING GLOBAL ECONOMY.

DECISIVE POLICIES MUST BE URGENTLY IMPLEMENTED TO GET RID OF THE EURO EREA SOVEREIGN DEBT CRISIS FROM SPREADING AND TO PUT WEAKENING GLOBAL ACTIVITIY BACK ON TRACK.

WITH A FEW EXCEPTIONS, THE BENCHMARKS COST OF CREDIT IN EACH EURO-ZONE COUNTRY IS RELATED TO THE BALANCE OF ITS INTERNATIONAL DEBT : GERMANY, WHICH IS OWED MORE THAN IT OWES, STILL HAS LOW BOND YIELDS WHILE GREECE, SPAIN, PORTUGAL AND ITALY FOR EXEMPLE WHICH ARE HEAVILY IN DEBT TO FOREIGNERS, HAVE A HIGH COST OF BORROWING.

MOREOVER, THESE « CLUB MED » COUNTRIES ARE KNOWN TO  STILL HAVE BIG CURRENT-ACCOUNT DEFICITS, AND SO ARE STILL ADDING TO THEIR HIGH LEVERAGED FOREIGN DEBT.

FRANCE TRIES TO STAY AAA.

UNDER THIS SCENARIO, A WIDE RANGE OF STRUCTURAL MEASURES ARE URGENT.

IN THE EURO AREA, THE RISK OF CONTAGION NEEDS TO BE STEMMED THROUGH A SUBSTANTIAL INCREASE IN THE CAPACITY OF THE EUROEPAN FINANCIAL STABILITY FUND, TOGETHER WITH A GREATER ABILITY TO CALL ON THE EUROPEAN CENTRAL BANK’S BALANCE SHEET.

IMPROVED PROSPECTS WOULD ALSO DEPEND ON THE ENACTMENT OF A CREDIBLE MEDIUM-TERM FISCAL PROGRAMME IN THE US  AND  » MUCH GREATER FIREPOWER MUST BE ACCOMPANIED BY GOVERNANCE REFORMS TO OFFSET THE RISK OF MORAL HAZARD » SAID OECD CHIEF ECONOMIST PIER CARLO PADOAN IN PARIS  ON NOVEMBER 28.

PHLDUCX

  • SOURCE  : OECD.
  • THE ECONOMIST NOVEMBER 26Th 2011.

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