EU dickering is a severe test for global patience

Posted on January 31, 2012

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How divorced from reality is the European Central Bank, really?

Official press conference following the Eurozo...

Debates at the World Economic Forum exposed how differently Europe and the rest of the world view the continent's debt crisis. (Image by President of the European Council via Flickr)

European Central Bank president Mario Draghi told the global elite gathered in Davos last week: “The amount of progress is outstanding. If you compare today with even five months ago, the Eurozone area is another world.”

It’s another world, all right. Draghi’s optimism on the progress made in dealing with the Eurozone debt crisis is certainly not shared by the rest of the world. Here is a selection of what the real world thinks:

  • Bill Gross of PIMCO, the world’s largest bond fund, tweeted: Oh what a tangled web the #EU has weaved. Never ending story, hard to trust. Risk off.
  • Japanese prime minister Yoshihiko Noda: Japan sees Europe’s debt crisis as the major risk on the current horizon.
  • British finance minister George Osborne: The fact that we’re still, at the start of 2012, talking about Greece again is a sign that this problem has not been dealt with.
  • Canada’s central bank chief Mark Carney: Europe’s woes are holding back the recovery and have effectively cut global growth by 1%.
  • Mexican president Felipe Calderon: Don’t forget that we are in the same boat. It is not just a question of a possible implosion of the euro, but a crisis across the world.
  • Donald Tsang, chief executive of Hong Kong’s autonomous regional administration: Two months ago in Greece you could make do with a 20% haircut; now even 50% is not easy. Maybe 70% is needed, so do it quickly. You need resolution and decisiveness.
  • World Bank chief Robert Zoellick: I’m glad the ECB took action (by increasing liquidity for Eurozone banks to buy more sovereign debt). But this buys time, you still have to act.
  • IMF director Christine Lagarde: No-one is immune in the current situation. It’s not just a Eurozone crisis it’s a crisis that could have collateral, spillover effects in the rest of the world.

Close on the heels of the Davos summit, EU leaders met on Monday in Brussels and dickered all day over the methods to use to save Greece from implosion and the Eurozone from fragmentation. In a last-minute deal, they approved a permanent rescue fund for the Eurozone. Even though it may be too little too late, it needs to be implemented quickly, before the rest of the financial world runs out of patience.

— Yazad Darasha

Click here for more intelligence on the Davos discussions on the Eurozone, hydrocarbons and the global economy.

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Posted in: Economy