When the financial crisis was exploding with maximum violence in the autumn of 2008, I found myself discussing with a group of economists about how much longer the crisis would have lasted. The majority thought that a three or four year period would have been sufficient to heal the sudden and acute pestilence. One colleague, a professor of economic history, had a different opinion. Looking back over history, he maintained that it would have taken seven years of lean times to right such a serious imbalance, just like in the Bible.
Four years have passed since that conversation, and that pessimistic prediction has not only come true, but some might say that it was a bit too bright.
The so-called V-shaped recovery, according to which a rapid fall would be followed by an equally rapid recovery, has failed to come true and actually seems to be farther away than before.
Even China, who had sustained worldwide growth more than any other country, is now watching its interest rates fall due to the difficulty in replacing its investments and exports, weakened by the fall of worldwide markets, with domestic consumption. China will continue to grow at rates that we can only dream about, but a couple of points less of Chinese growth will do nothing to help the worldwide recovery.
Even more complex are the situations of the other BRICs who, starting with Brazil, will need to make changes in their economies not unlike those being undertaken by China.
For their part, the United States initially reacted to the crisis with initiative, but now they have entered a period of more modest development that will likely worsen given the instability of both public finance and the commercial balance.
This brief round up of post-summer analysis can only wrap up with Europe. We are skirting zero growth with a tendency towards the negative. The Mediterranean states are not the only ones in trouble; France is nearly in a recession, and according to OCSE, Germany’s situation is also worsening.
Considering all this information, I must admit that at least for now, there is a very long tunnel ahead of us and, despite the use of ever stronger binoculars, the light at the end has yet to appear. And yet, in global terms, the European Union appears to be more stable in comparison to the other regions: public budgets are relatively healthy and so is the commercial aspect. The problem is that this good European health is built upon a sum of opposing growth rates in the different countries and the instruments for blending these divergent policies do not yet exist.
Given the situation, the revival of the individual members is a necessary condition but not itself sufficient for a full recovery: without a collective push for growth, there is no possibility for a concrete adjustment by the troubled nations. Whatever they gain by fixing their balance sheets, they lose in continuing deterioration of the economy.
Unemployment, corporate crises, and the bankruptcy of retailers are all factors of depression that can only be remedied by a policy of encouragement of purchasing power guided by the countries with more solid balance sheets, starting with Germany.
This does not mean putting the necessary reforms and sacrifices on the back burner: we just need to be conscious that these measures will only bear fruit after several years, but the economy is in free-fall right now. The development of a common economic and financial policy is therefore indispensable to give countries like Italy and Spain the time needed to allow their reforms to take effect, before their economies collapse and exacerbate the situation across Europe.
For this reason we need to see the BCE’s recent decision to use everything in its power to diminish existing tensions in the European financial markets with great favor. It is a decision that Mario Draghi announced ahead of time and had approved by the BCE, despite the veto of the Bundesbank. It is a message that clarifies the desire to use all means available to guarantee the future of the European single currency.
It is not a global solution or a solution sufficient to resolve all of the problems facing our economy today, but finally a decision has been made that takes the first important step towards the alleviation of inequality (the infamous spread) between the interest rates of the various member countries.
Other more difficult decisions will need to be made by the individual governments and the European Commission, and even if the light at the end of the tunnel is not yet visible, the train that has been stopped in the middle has finally started moving forward again. This is better than we could have hoped in these dark times, after all.