Bradley Associates World Current News:Global economy ‘in a dangerous new phase’

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APA general view of the Bundestag (German Parliament) at its session on eurozone rescue in Berlin last week.

The pressing issue has been the Europe’s sovereign debt crisis

In its recent biannual publication, World Economic Outlook, the International Monetary Fund warned that the world economy was “in a dangerous new phase.” That warning was issued just days before the annual IMF-World Bank meeting of finance ministers and central bank governors in Washington.

With the World Bank and other international agencies more or less endorsing the IMF’s view, it was hoped that the high-level meeting (on September 24 and 25) would come out with a more tangible statement of intent if not a credible action plan to tackle the euro debt crisis and other pressing concerns than what it eventually managed.

The most pressing issue has been the sovereign debt crisis in Europe. Despite considerable pressure from other countries, leading European economic powers failed to reach an agreement on a specific bailout plan that would stave off a default by one or more eurozone countries. A press release at the end of the IMF-World Bank meeting merely asserted that the eurozone along with other member nations was committed to fixing the problem.

Such inaction can be costly. More than anything else it shows a lack of political will without which no solution to the euro crisis is possible. On their part, the richer countries in the eurozone, notably Germany, have argued that strong political opposition at home has made their task of funding a rescue plan extremely difficult. Already the idea of “throwing hard earned money for the benefit of profligate neighbours” has cost the ruling German coalition dear in some recent elections.

In the last fortnight, financial markets around the world, which had witnessed a sell-off, were bracing for a major meltdown. If that happens, the prospects for a recession will increase. Granted that the eurozone’s sovereign debt crisis has assumed menacing proportions, is the panic reaction of the stock markets justified?