Download euro crisis – is 2013 the end of it

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EURO CRISIS : IS 2013 THE END OT IT ?
By Prof Phil H. Latimier du Clésieux
The global economy took a sharp turn for the worse
following the collapse of Lehman Brothers in September
2008.
After five years of economic crisis, it is increasingly
apparent that the global economy is still slowing and
weakening.
The key reasons for the lack of recovery are the private
sector deleveraging, the fiscal consolidation, the euro area
crisis and the emerging markets economies (EMEs)
slowdown.
The economic outlook for 2013 is not that much different
than it was a year ago: Europe seems to be in Japan’s
footsteps with key European countries entering a recession
that is now having an impact worldwide.
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The continuing euro area crisis is dampening global
confidence, weakening trade and employment and slowing
economic growth for OECD and non-OECD countries alike.
Today, the risk of a new major contraction cannot be ruled
out.
Because deficit and debt reductions require economic
growth, fiscal consolidation needs to be as growth-friendly
as possible.
That said, the outlook as reflected by the real GDP growth in
per cent for 2012 and 2013* clearly indicates that a
recession is ongoing in the euro area : - 0.1% Vs -0.4%.
The US economy is growing (2.2% in 2012* ) but a slowdown
is still expected to surface in 2013 ( 2.0%*).
The Japanese economy is also projected to contract from
1.6%* in 2012 down to 0.7%* in 2013 while growth is
slowing in 2012 in many emerging market economies such
as Brazil, China, India, Indonesia, South Africa and the
Russian Federation.
A number of downside risks threaten the outlook, including
the potential for further increases to already high oil prices,
excessive fiscal contraction and further declines in consumer
confidence linked to persistent unemployment.
The road to recovery is a tough one, and strong leadership
and resolute collective commitment to change are definitely
needed to unblock progress in 2013.
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We need to re-inject hope and confidence but the crisis in
the euro area is being sustained by three negative feedback
loops that amplify shocks :
1. Solvency fears for banks are feeding on each other due
to government guarantees for banks and bank holdings
of government bonds.
2. The possibility of exit from monetary union pushes up
yields, which in turn reinforces breakup fears.
3. Worries about government debt are also driving up
yields, which further weigh on debt dynamics.
As per the recommendations of OECD, a positive policy
response is possible and should be based on the full use of
available policy levers : monetary, fiscal , and structural.
 The monetary policy stance should be further eased in
many economies.
 Excessive near-term fiscal consolidation should be
avoided.
 Structural policies should be fully activated in many
countries in order to boost growth and generate
sustainable current account rebalancing, especially in
the euro area.
 When it comes to the euro area, we also believe it is
necessary to break the feedback loop between the
banks and the governments as well as the feedback
loop between the exit risk and the bond yields and
debt sustainability. In that regards, progress towards a
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fully fledged banking union is essential to complete the
architecture of the euro area and to facilitate
disentangling sovereign and banking sectors fragilities.
 We at ITALIE-FRANCE.COM also firmly support the idea
that growth could be boosted by an ambitious
“Marshall Plan” in EUROPE based on jumbo
Infrastructure Projects fully funded by callable bonds :
Such bonds would be underwritten by tax-payers and
international investors and would be issued with the
non- revocable and unconditional guarantee of the
ECB.
 With a general government debt which came to 94.1%
of GDP compared with 65.6% in 2000 plus a 9.8%
unemployment rate in FRANCE, with a general
government debt which came to 102.4% of GDP, up
from 39.4% in 2000 plus an unemployment rate that
more than tripled in the past decade from 4.2% to
13.7% in ITALIE, We at ITALIE-FRANCE.COM definitely
believe that steadfast action is essential to unblock the
situation in the short run.
SOURCE : OECD Yearbook 2012 + Economic Outlooks 2012
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PHLDUCX
December 5th, 2012.