Let us take a look at the “Euro Zone.” Greek solution still remains elusive, though some tentative progress is slowly emerging. The European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) are virtually refusing to finalize Greek’s second bail-out (EUR130bn, though more may be required to recapitalize the banks) until Greece’s political leaders have agreed on further austerity and structural reforms. Germany has chosen the austerity route but without any economic growth and this might create a downward spiral. Without a commitment to discipline, Germany would be unwilling to provide support though it wants Greece to stay in the Euro. While Portugal is still in the market’s cross hairs, Italy has managed to move out of focus , and its yields have fallen back, perhaps owing to the technocrat PM’s deft leadership. But it could be short-lived. Hence a lasting solution is required.
While looking at the two large Asian economies of China and India, the euphoria that existed until the beginning of last year has gone into sublimation. In China, the economy continues to be slow but less speedily than most estimates. The GDP for the full year average for 2011 would be around 9.2 percent, down from 10.3 percent achieved in 2010. Authorities have started loosening policy but hopefully it would be done in a cautious manner so as to keep inflation under check. In India, the economy is slowing; probably the current fiscal year will see an average GDP of about seven percent, a dip compared with 2010-11.Although INR has stabilized, it still remains vulnerable. Though food inflation has contracted substantially, the overall inflation still remains in the high range. The government has to take measures with cautious optimism in order to instill growth momentum in the economy. Few other Asian economies like Indonesia have been doing well, mainly because they are assisted by burgeoning domestic demand.
Where is global economy moving toward?
Nevertheless, when we look at the major economies of the world, they do not inspire confidence for quick stability and a peaceful future. Our apprehensions get escalated by the constant trouble and violence in many parts of the globe. At this juncture when we are at virtual crossroads, the central banks, rather than the national governments—I am not saying that governments have marginal responsibilities and accountabilities—should be better equipped to embark on such a holistic mission since, in terms of both theory and tradition, they are capable of rising above the pulls and pressures associated with political dispensations.
It would not be out of place to mention what Dr D Subbarao, the governor of Reserve Bank of India, has to say about global economy here. For him, even before the onset of the global financial crisis and sovereign debt shocks, it should have been clear to the central banks that the three objectives—price stability, financial stability and sovereign debt sustainability—had interconnected etiologies and that a holistic understanding of the banks’ responsibilities was imperative. For the moment, however, let us keep our fingers crossed for the future to unfold, of course more hopeful one.
The writer is a former CEO, Standard Chartered Bank Nepal Ltd
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