KATHMANDU: Investors around the globe are charging to invest in the American, German and other limited number of sovereign bonds as these are being prescribed as safer to invest in. This shows that investors are expecting a couple of outcomes from the global economy, that is, either they expect economic stagnation or are worried about the immediate disaster that may be around the corner due to the economic crisis and slowdown in major economies of Europe and Asia. The bottom line is that both of these expectations point towards something very wrong with the global economy.
The figures and reports also point towards this somewhat negative sentiment for the global economy as recession in the Euro Zone’s periphery is deepening. The American economy too is not in the safe zone as the last three month’s jobs data is not encou-raging while economic slow-down is escalating in emerging economies like China. Countries like Brazil and India are also
facing trouble with slower growth. But these scenarios are not as dangerous as in the Euro Zone since it is on the brink of a collapse. There is a high possibility of the European Union (EU) getting dragged into an economic catastrophe which could be due to bank busts, defaults and depress-ion similar to the post Lehman Brothers’ collapse in 2008.
Although efforts are being made in the form of recapital-
isation of the Spanish bank and the pro-austerity party emerging victorious in the Greek elections, these might just be short-
term solutions. The longer-term solution requires some bold fundamental steps to generate a stronger EU. These bold steps could be the shifting from the austerity measures to far broader focus on the economic growth as this is instrumental for the region to get out from this mess in Euro Zone. Similarly, other bold steps could be providing room for periphery economies to reduce their debt burdens.
Other than this, there seems to be a deficiency in policy in the Euro Zone as there is no clear path being prescribed for fiscal and banking integration which is a prerequisite for any single currency to survive. These fundamental improvements would help periphery European economies to stand on their feet, only after which, can we imagine a stronger EU that would be able to comp-lement the global economy.
(The author is the assistant manager of research and development at Mercantile Exchange Nepal. He can be contacted through email@example.com)