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6 Μαΐ 2012

The New York Times, The Global Economy at Risk



Anxieties about Europe dominated  meetings in Washington of the International Monetary Fund and World Bank. Fund officials warned that the euro-zone crisis poses a grave danger to a weak global economy. Europe’s leaders, masters of denial, are still insisting on destructive austerity. The danger was underscored by the latest Brookings Institution-Financial Times index of global economic recovery. The index, which measures economic and financial activity as well as confidence, shows that the world economy has deteriorated since last fall. Europe has been hard hit by its leaders’ continued insistence on austerity for all. The United States is doing better, though it is still vulnerable to rising oil prices or deep recession in Europe. Growth slowed in China and the major emerging economies largely because of the lack of robust recovery elsewhere. Perhaps even more telling, the global index would have fallen further but for upticks in financial conditions and confidence after the European Central Bank injected liquidity into the euro-zone banks. But investors have already figured out those interventions are too small, especially when combined with policies that only cripple growth. Most recently, they have turned against Spain.

At the meetings this week, several of the Group of 20 economies pledged $430 billion to nearly double the I.M.F.’s ability to make loans. That could bolster the European bailout fund, but not all of that will be for Europe. And more would be needed if large European economies, like Spain, have to be rescued.

At the same time, Chancellor Angela Merkel of Germany and other European politicians continue to resist the advice of I.M.F. officials, including the sensible call for euro-zone members to issue bonds backed by all members. That would ease borrowing for Spain and others. But Ms. Merkel and her voters are still insisting their neighbors must pay for their sins with even deeper budget cuts.

Never mind that Spain is in trouble because of the bursting of a Spanish housing bubble, not because of government overspending. And never mind that too much austerity in Greece, which undeniably overspent, is backfiring. Budget cuts in the face of recession only further cripple growth and tax revenues, increasing debt burdens.

Changing minds will not be easy. The Times’s Annie Lowrey and Jack Ewing reported this week that confronted at the meetings with calls to moderate their austerity stance, German officials countered that Washington and others were making insufficient progress with financial reform. That is true, but off point.

The way forward in Europe and the United States is the same: near-term efforts to ease crises and stimulate demand coupled with serious plans to improve national budgets as the economy recovers. Until Europe’s leaders figure that out, the global economy will remain at risk