Politicians Guarding Over the Economy

February 3, 2012

 

Participants of the panel discussion entitled “The Future of the Global Economy and Financial System” gave the eurozone a disappointing diagnosis: geopolitical measures will not help correct the situation; immediate surgical intervention is necessary.

The keynote of British MP Gordon Brown’s speech was the call to create a global system of financial regulation. “We are not talking about domestic capital flows anymore because money is now flowing globally. This means that the transition must be made from national monitoring to global monitoring,” underlined the former British Prime Minister. Charles Wyplosz, professor of international economics, supported Gordon Brown’s idea to create supranational fiscal agencies, but noted that the primary problem remains the debt burden of specific European countries. “We should write off the Greek and Portuguese debt, and possibly Italian debt too. If their debt disappears then so will the crisis,” said the economist. In his opinion, the collapse of the eurozone will result in huge financial losses, in particular, losses on contracts that have already been signed.

Kenneth Rogoff, professor of economics and public policy at Harvard University, called the European Union a “crazy experiment,” which will find few followers. In his opinion, political miscalculations were one of the reasons for the crisis. “The eurozone is a step towards creating a fully fledged political and economic union. The printing of money by the European Central Bank cannot singlehandedly uphold this system in the long-term. Serious changes, which we are yet to see, must be made to the political and tax systems,” declared the economist. He also placed responsibility on the electorate for voting for “the wrong people”. Gordon Brown, on the other hand, stood up for voters, saying that it is precisely politicians who are responsible to the people who voted for them.

Jean-Michel Six, Managing Director and Chief EMEA Economist at Standard & Poor’s, identified three pillars upon which European investor confidence rests. Firstly, it is widely believed that no one will allow any of the eurozone nations to default. Secondly, if default does in fact happen, then there are safeguards and guarantees that will help sort things out. And finally, not one of the member states wants to leave the EU. In Mr Six’s opinion, all three of these positions are now far from unquestionable. “To overcome the crisis it is essential to resolve the issue of competition between eurozone countries. The colossal gap between countries is a fundamental problem of the EU,” emphasised the Managing Director of S&P.

The imbalance caused by excessive provision of credit is still with us. William R. White, Chairman of the Economic Development and Review Committee, OECD, is convinced of this. He gave his own pessimistic forecast of the situation: “The banking system’s dolce vita is over. In Europe the next crisis is unavoidable and it will help politicians to finally understand what measures they need to take.”

Participants of the discussion came to the agreement that sovereign debt problems will not be solved unless structural reform is enacted. “Leaders must join forces and rebuild the obsolete international system for coordinating economic policy. Serious reforms will save the EU, and the sooner they happen, the better. “Homeopathy” in the form of pumping money into the economy is useless,” stated Gordon Brown, concluding the discussion.