The European Crisis and the Global Economy

In fact, the changes taking place in the world and its instabilities are so sweeping that only considerations on a macroeconomic scale can help understand the current situations, and with all due caution, possibly shed some light on future developments.

Among the first to be accused for the crisis which began five years ago, and has still not lessened its terrible grip is, without a doubt, the excessive power of the financial institutions. When will the virtuous circle of the global economy get back on track?



Above and beyond the all too academic arguments over who is to blame for setting off the current crisis (Cynical Wall Street professionals? The managers of large commercial banks and their risky investments? The appalling weight of national debt, especially European?), the two apparent facts that distinguish it, as pointed out by Raghuram Rajan, the well-known economist and professor of finance at the University of Chicago, are the critical slowing of demand for goods and services in the United States and in Europe, as well as the immense inequality in the distribution of income that characterized the last decade of development of the US economy. Inequality that in the ‘old world’ was transferred to the individual countries, where the North (Germany in the lead) despite it all, is advancing, and the South, back-tracking. On one hand, the progressive liberalization of the economy favored those classes, or rather, those people who had the technical and cultural skills most suited for taking advantage of the new opportunities while, on the other hand, the initial success of the Euro promoted the development of most of Europe’s nations through debt. With the exception of Germany which, in order to bear the great burden of unification with East Germany had to prematurely put into place those policies of severity and a return to government efficiency that today place it in the best position to face the crisis. And now Germany is insisting that the other partners put similar policies into practice.

But the sluggishness and quarrelsomeness with which Europe has faced its difficulties during this last year are encouraging the global economic and financial contagion -- the collapse of Europe’s economy has ensured that not even the traditional drivers, the United States and China, have any luck pulling the global economy out of the swamp of fate. China has cut back on its exports to Europe and, to an even greater extent, on its imports, and is caught up in a curtailment in the growth of the GDP. America sees a dramatic downsizing of its prospects for recovery, with the creation of new jobs at levels only half of what it expected. Russia and Brazil, two more bastions of safety (though of lesser importance), maintain their positions for now, though with increasing difficulty.

So, what can be done? “The situation is truly unique – is Honorary President of Gimav and President of Vitrum, Dino Fenzi’s emphatic reply – because the international economic indicators are all pointing in the same direction, the third quarter of this year will be worse for everyone. Even the emerging markets are slowing down and investments have gone into hiding, except for the major corporations that have multi-year plans. We are at a standstill -- the ‘virtuous circle’ will begin again, but it’s impossible to say when.

One thing is certain, and that is that right now there are too many imbalances between various countries, causing the crisis to also become a price war. What is urgently needed is a rebalancing of the exchange between Europe and the rest of the world, and to find a common point of departure to ensure that the machinery starts working again”.