Political Risk Latin America Blog @PolRiskLatam

A Post-Crisis World of Risk

Posted in News and Articles, Political Risk by politicalrisklatam on June 21, 2011

by Michael Spence for Project Syndicate, June 15th, 2011.

In the attached Project Syndicate video, Michael Spence expands upon the views expressed in this commentary. Click here to watch.

MILAN – The global economy’s most striking feature nowadays is the magnitude and interconnectedness of the macro risks that it faces. The post-crisis period has produced a multi-speed world, as the major advanced economies – with the notable exception of Germany – struggle with low growth and high unemployment, while the main emerging-market economies (Brazil, China, India, Indonesia, and Russia) have restored growth to pre-crisis levels.

This divergence is mirrored in public finances. Emerging economies’ debt-to-GDP ratios are trending down toward 40%, while those of advanced economies are trending up toward 100%, on average. Neither Europe nor the United States has put in place credible medium-term plans to stabilize their fiscal positions. The volatility of the euro-dollar exchange rate reflects the uncertainty about which side of the Atlantic faces higher risks.

In Europe, this has led to several ratings downgrades of the sovereign debt of the most distressed countries, accompanied by bouts of contagion spilling over to the euro. More seem likely.

As for the US, Moody’s recently issued a warning on the country’s sovereign debt in the face of uncertainty about Congress’s willingness to raise the debt ceiling amid highly partisan debate about the deficit. Both issues – the debt ceiling and a credible deficit-reduction plan – remain unresolved. (continue reading… )

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: