The world is not yet ready to help Europe

The world is not yet ready to help Europe

During a previous interview, International Monetary Fund (IMF) Managing Director Christine Lagarde implicitly indicated that the total economic power of all European countries was not sufficient to save the continent from an economic and, perhaps, political catastrophe.

Recently she declared her concern again and warned the global economy was in danger, adding that the IMF’s 4 percent growth forecast for the world economy in 2012 could be revised downward.

First, she urged European leaders to act together and to set a detailed timetable to regain the confidence of investors, before calling on countries outside Europe to join the battle against a global financial crisis. Her reasoning was simple: the European debt problem could easily spill over into international trade and banking, so it was unwise to simply watch what was happening on the old continent. Similar signals have been coming from the European Central Bank (ECB).

However, there is no problem-free country in the world at the moment, except Germany. And although good news has been coming from the jobs market in the United States, consumer spending, private investments and home sales remain weak. Some economists suggest it is too early to make overly-optimistic projections by looking at job growth figures alone. Nevertheless, they still expect a better-than-projected growth rate for the last quarter of 2011. But this does not mean 2012 will be better than last year. As such, even the richest country in the world might not be eager to help Europe, especially during an election year.

Some distressing news has also been emanating from other parts of the world. Obviously, the negative effects of the European debt and deficit problems have already been felt across Asia and Latin America. Europe is China’s biggest export market and recent figures show that Chinese growth is slowing down considerably. The forecasts for 2012 are below 8 percent, while the growth forecast in Japan is now 1.8 percent, which is good enough to avoid a recession but not enough to bring the country out of deflation. India and some other Asian tigers are uneasy because of slowing growth and creeping inflation. 

Compared with previous years’ double-digit growth rates, the 3.5 percent growth estimate for Brazil is not encouraging, although its economy has surpassed that of United Kingdom’s. 

In the end, it is not just Europe - other powerhouses of the world economy with the capacity to help the old continent have their own problems themselves. Yet the leaders of such countries are hopefully wise enough to see the approaching economic calamity. If they are rational enough, they might spare some of their efforts and resources for the sake of European salvation. To justify this devotion, European leaders must unite on a reasonable, rational, practical and simple solution. 

Unfortunately, this is not the case and they are drifting further apart on solutions. German Chancellor Angela Merkel first rejected the mainly French approach to support banks and markets by creating liquidity and then became somewhat more obstinate after the news the French government was preparing for an expected downgrade to the country’s triple-A rating by Standard & Poor’s. 

In addition, everybody is now aware of the rift between the United Kingdom and the rest of the continent, which became clear during the latest EU summit, presenting a serious problem for the unity of Europe.

Although the ECB chief recently said the Bank would never do any of the things that the German chancellor opposed, he strolled around the bush and lent a lot of money to a large group of the European banks.

Yes, it did not directly finance the governments, it did not support the European rescue fund and did not print extra money, but will it be possible to convince Merkel the ECB’s intervention has not contradicted with her formula for a solution?

European Union, euro crisis, global crisis, credit crunch, Greece, Greek default,