Whew! Europe back from the brink

Monday, December 12, 2011

We're busy with elections but let's not forget what's happening in the world and how we will be affected, irrespective of which party forms the next government.

A recent Citibank report states that several countries in the Caribbean "have European debt dynamics", a euphemism for being on the brink of default. What happens in Europe is vitally important to governments in the Caribbean because first, the existence of a debt crisis in Europe will cut into consumer spending including expenditure on tourism in the Caribbean. Second, the conventional wisdom is that how the European debt crisis is handled will have important implications for how other heavily indebted countries will be allowed to reorganise their debt.

The vicious circle of indebtedness has a stranglehold on the European Union. The faltering steps by the EU to control and reduce the debt and prevent serial defaults across the union are of vital importance. This is so because of the role of the EU in the global economy, the distinct possibility of igniting a global contagion and elements of the approach could form part of a model for other regions such as Caricom.

Italy is the world's third-biggest sovereign borrower and at the moment, the IMF is conducting "enhanced monitoring" of Rome's policies. The recently concocted Franco-German plan to stabilise the Euro involves shoring up Italy and Spain. The EU will be setting the rules, enforcing the rules and providing the money. The IMF is on standby but it is not clear what role it will be called upon to play if there is a big bailout for Italy and Spain and if the European Union has sufficient resources to go ahead without the IMF.

Standard and Poors (S&P) has announced that they had put 15 of the 17 Euro Area countries on watch for sovereign credit downgrade, including France and Germany, with the two exceptions being Cyprus and Greece, which are already rated low enough. France was one of a group of nine countries for which a two-notch downgrade is a possibility.

S&P cited the interaction of several adverse factors, but the main drivers of this negative forecast are the tightening in fiscal policy and the increased possibility of a region-wide recession in 2012. S&P now projects 0.4% growth for the Euro Area in 2012, with a 40% chance of an outright decline. Many economic pundits think that the likelihood of an outright decline in 2012 is far higher than this.

The threat of a collective downgrade of euro-zone credit spread like a tsunami over European markets, dampening confidence in plans for a solution to the debt crisis. However, markets recovered from an initial unease and German Chancellor Merkel dismissed the threat of a collective or European-wide downgrade by the rating agencies.

Given that the small, developing economies of the Caribbean are among the most vulnerable to events in the global economy and given the limited resilience of this type of economy, there is need for a new debt adjustment/management paradigm. The Caribbean should be doing the technical formulation and the political leadership must take this initiative to the international community for funding and technical support.

Now that even the formally immune European Union is caught in the throes of a debt crisis it has created the political receptivity to new ideas about debt management. The Caribbean must seize the moment to help ourselves.

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COMMENTS (17)

1/1/2012

Such a deep asnewr! GD&RVVF

howie J
12/13/2011

@Bogle, in a general sense, the republicans follow Friedrich von Hayek economic theory, while the democrats adhere to Maynard Keynes economic theory. The republicans believe that governments should not intervene in markets, while the democrats believe governments should.
……
Europe attracts large investments thru’ public-private funding in major public infrastructural projects, while the U.S. government is expected, in most cases, to fund large projects. This is one of the reasons why the U.S. still doesn’t have high-speed rail and its infrastructures (roads and bridges) are decaying, because it practices a form of socialism. When the U.S. government runs low on funds, these public projects are put on hold or cancelled.

PL BOGLE
12/13/2011

@howie J, “the U.S. with its extreme form of capitalism.” Capitalism is capitalism no matter how you look at it. The E.U. will pay for their Sins too, especially against the “Mother Land” @Nejeeper “The U.S. and the E.U. affects the world economy directly because of many factors.” I agree because they’re no difference, they’re the same World Order, they also fight side by side in the same wars. It will happen to both the U.S. and E.U. “If you are too greedy nature will chew you up and spit you out to balance itself.”

Noel Richards
12/13/2011

Nice one Observer, censoring much?

Nejeeper KNG
12/13/2011

Mush respect Howie J statements like “If you are too greedy nature will chew you up and spit you out to balance itself” is a philosophical logic. Not too long ago Alabama (U.S.) pass an immigration law that brought them to their knees. The immigrants who were picking their crops got scared and started leaving. The state tried to compensate but not even convicts could handle the harshness of picking crops so Alabama’s GDP was directly affected. Now the U.S. is taking a better look at immigration.

howie J
12/13/2011

@Nejeeper KNG, you are correct. At close to 500 million and 17 trillion GDP, the EU is indeed the world’s largest economy. The U.S. does 20 percent of its business with the EU and roughly 60 percent of all U.S. flights go to the EU.
There are many examples throughout history to show that when the masses are pushed towards starvation they will destroy the 1 percent. It happened to the Romanoff family in Russia. It happened to Rome and it will certainly happen in the U.S. with its extreme form of capitalism. If you are too greedy nature will chew you up and spit you out to balance itself.

Nejeeper KNG
12/13/2011

@wanda woeman the world does not have an economic model; countries in the world adopt various economic models base on Governmental leadership and vision. The U.S. and the E.U. affects the world economy directly because of many factors. Read up on “derivative investment.” An expression sometimes attributed to Warren Buffet who described derivatives as "financial weapons of mass destruction" that harbor latent dangers for the institutions that use them.” The U.S. is directly affected by the E.U.

wanda woeman
12/13/2011

@Noel Richards, probably if the government released the Orion pictures and tell who paid Manatt, then probably, just probably the PNP would disclose about Trafigura, although I don’t see what further is to be said, since the Opposition Leader said they received the money to fund their election campaign. @Nekeeper KNG why has Jamaica adopted the world economic model then?. And in your final paragraph, let’s substitute “Jamaica” for.“U.S.”
We continue to see the moth in the eyes of others while ignoring the plank in ours.

Noel Richards
12/12/2011

avid equin, the GOJ will not release any photos or video they may have received from the US Government. They will not be authorized to do so. Should anyone want to see what was produced by the Orion, they will have to use the US courts to get a result against the US Government, particularly Eric Holder (DOJ) and Janet Napolitano (DHS). Anything else will be exercises in frustration. The PNP, having signed the MOU in secrecy, should already be aware of this. Mr. Bunting's call is specious at best

Nejeeper KNG
12/12/2011

The EU is the world’s largest economy with the US being their largest trade partner. The Global economy is control and run by the “one percenters” who have shored up their wealth and power in the new World order. During this so-called economic crisis the one percenters have gotten richer. The world economic model is… In order to be extremely rich you have to have extreme poverty. The millionaires in the US call paying more taxes redistribution of wealth, they flourish off poverty.

howie J
12/12/2011

The original plan was for America to be based on egalitarianism. One of the dreams of the U.S. founding fathers was social capitalism based on Christian principles.
The capitalist system of the U.S. was designed by right-wingers to keep some people in poverty. Once you can reduce the middle class to poverty then you can easily turn them into slaves. This argument is based on 17th century political economists, like Rev. Thomas R. Malthus.
This is just another one of those many obstacles which Europe will overcome in its 2500 year history.

0o k
12/12/2011

EuroZone will survive they have made a mistake in growing to quickly and inviting all and sundry, many who refuse to be fiscally responsible.
I see CARICOM is not making the same mistake, no wonder have not decided on full political and financial union in all these years of its existence?

fall mouth
12/12/2011

@avid equin, I don't think the Observer has a board since it is not a limited liability company. I think it is owned by one individual. I don't think they could get away with what they do, if it were a limited company.
It is my believe that no media outlet should ever be owned by one man, since they can use the very important fourth estate to push their agenda.
Not to say that this one does.

nervous investor
12/12/2011

The Euro three card trick is a sham and will not work. There is still no emphasis on dealing with the fundamental issue; one can live beyond one's means only until the money done - own money, borrowed money and now tiefed money. Get used to it ... the money is done - they can print what they like but it is just a face card - the value of that money will decline precipitously. This is the natural result of European Socialism.

wanda woeman
12/12/2011

This is especially good news, especially for me. You know what though; I think you should apologize to your readers for that editorial yesterday.
It was downright insulting to our intelligence and made us look like you were writing for a bunch of nitwits.
With that editorial you are not only downgrading us, but yourselves by suggesting that your readership has a Readers Digest mind.
I was really hurt and insulted and took it personally. And then you closed the blogs so early.
Do better Ob.

avid equin
12/12/2011

Threre was a plane ..So What ?
"The story is not that the plane was here. We know that already. The media must not stop until that "continuous" video is released and used as evidence to investigate and prosecute those who may have butchered their fellow Jamaicans using the arrest warrant for Coke as a cover."
Gordon Roinson..Sunday Gleaner. Obviously !!
Is the Observer still a business and what is its business objective ? Did the Board vote for it to become a scandal rag ? Let us know please

Noel Richards
12/12/2011

The Euro is a "Dead Man Walking".

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GCT to go down, white rum prices going up

Whew! Europe back from the brink