The world this week

The Economist photo

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Grow, Dammit, Grow!

 

You have probably already noticed I am the Economist addict. Check out their new cover that is fascinating.

LOOK at the world economy as a whole, and you could be forgiven for thinking that the recovery is in pretty decent shape. This week the IMF predicted that global GDP should expand by 4.8% this year—slower than in the boom before the financial crisis, but well above the world’s underlying speed limit of around 4%. Growth above trend is exactly what you would expect in a rebound from recession.

You can read some articles from this report HERE and HERE.

Yet this respectable average hides a series of problems. Most obviously, there is the gap between the vitality of the big emerging economies, some of which have been sprinting along at close to 10%, and the sluggishness of many rich ones. Macroeconomic policy is also weirdly skewed: many emerging economies are loth to let their currencies rise to reflect their vigour, even as fragile rich ones are embarking on austerity programmes. And finally there is a crucial missing ingredient just about everywhere: “micro” structural reform, without which current growth rates are unlikely to last.

And one more excerpt from this article:

The next few years could be defined as much by the stagnation of the West as by the emergence of the rest, for three main reasons. The first is the sheer scale of the recession of 2008-09 and the weakness of the subsequent recovery. For the advanced economies as a whole, the slump that followed the global financial crisis was by far the deepest since the 1930s. It has left an unprecedented degree of unemployed workers and underused factories in its wake. Although output stopped shrinking in most countries a year ago, the recovery is proving too weak to put that idle capacity back to work quickly (see chart 1). The OECD, the Paris-based organisation that tracks advanced economies, does not expect this “output gap” to close until 2015.

Their Eastern Approaches

I systematically follow Edward Lucas’s blog “Eastern Approaches” at The Economist. Yestarday I read an interesting post about EU-Russia visa liberalization. Lucas published this particular article at The Economist’s sister publication in Brussels, European Voice, that carries a weekly column called “Wil(d)er Europe”. Excerpt from article:

Leaving rhetoric aside, the issue is really about two things. One is fairness. Should Russia get a deal that is better (perhaps dramatically better) than what is on offer to the countries of the ‘Eastern Partnership’, such as Ukraine, Georgia or Moldova? The EU has repeatedly criticised the Russian policy of “passportisation” in Abkhazia and South Ossetia, two breakaway regions of Georgia where ties with Moscow have been bolstered by the generous provision of Russian passports. If visa liberalisation now made it easier for such Russian passport-holders to get to the EU, it would be outrageously unfair. It would also undermine the attractiveness (and thus sovereignty) of the countries that we are trying to help.

Read the rest on my blog: Continue reading

EU’s Cognitive Dissonance

There are rumours that EU is suffering from what psychologists call cognitive dissonance.

Definition: Cognitive dissonance is an uncomfortable feeling caused by holding two contradictory ideas simultaneously.

Jean-Claude Juncker, prime minister of Luxembourg, put it best in 2007: “We all know what to do, but we don’t know how to get re-elected once we have done it.”

As The economist puts it: “Will the European Union make it? The question would have sounded outlandish not long ago. Now even the project’s greatest cheerleaders talk of a continent facing a “Bermuda triangle” of debt, demographic decline and lower growth.”

A rival perception (between Germany and France) suggests that they are more like a couple on the verge of divorce: they agree on little, and trust each other even less. Consider the row over economic government. The French want to concoct a euro-zone block, with a direct line to the European Central Bank and fiscal harmonisation. The Germans reject this. They insist on a wider grouping, backed by strict budgetary discipline, and harsh sanctions for bad behaviour. The Economist

With unemployment the worst of the post-World War II era, there has never been a better pretext for reform they argue in Europe.

In Asia and America it has become fashionable to look upon these failings with disdain. Europe’s time is past, it is said. Its ageing, inward-looking citizens no longer have the resolve to overcome adversity. The Economist

I was very much amused with the readers’ comments in the end of The Economist article. One for instance: “If nations were individuals, Europe would be that senior citizen. I personally think they have gotten too lazy and the socialized services have added to the problem.” and another “Politically, Europeans look like the post-WWI isolationists who think they are too innocent to leave their lovely home and do anything for the ugly outside world.” They go further and argue that one the most important functions the EU plays is ensuring that Europe stays democratic. What they have on mind, among other issues, is that except for Britain, France and a few Scandinvian countries, most European countries have only a few decades of experience with democratic governance. The memory of dictatorships are fresh. “who knows what will happen if there is a serious depression in these countries, will their new democracies be able to stand a trial of fire?” – the readers ask. And yes, will the EU be capable to get rid of its cognitive dissonance and take a united lead? well, I am not that EUphile, so you can understand my not really optimsitic attitudes, however The Economist says:

Yes: the European Union will thrive if its leaders seize the moment in the same way they did 20 years ago.

Last but not least, there is another point I would like to make concerning EU’s confusion. Far from shifting Ukraine further towards Russia, the election of Viktor Yanukovych could provide the EU with the opportunity to reengage with the keystone to Europe’s Eastern neighbourhood, according to a new policy paper by European Council on Foreign Relations Ukraine expert Andrew Wilson. and an interesting quotation:

When the EU encourages states like Belarus and Amenia to reform, it is in effect asking them to be ‘more like Ukraine’. If that request makes leaders in Minsk or Yerevan recoil or laugh out loud, then Ukraine really will have failed – and Europe with it.

True Dr. Andrew Wilson, true…

Acropolis now?

The Greek debt crisis is spreading. Europe needs a bolder, broader solution—and quickly, says The Economist. Read full coverage of Greek crisis HERE. What I wanted to share  even more was the following photo that speaks for itself. I just love The Economist’s creativity: