The problems remain in the other struggling European countries and crisis management will continue in Europe throughout 2012 — but Greece is the most urgent. While answering questions from students in Germany Angela Merkel was asked by one Greek woman: "How much more must we suffer before you help us?" Mrs. Merkel was visibly moved by the question; she stuttered for a moment before she trotted out the same old answer about an ordered economy and responsibility etc. I believe this to be the nub of the crisis — ordinary people are unable to handle more misfortune; they don't understand why they must be punished by unemployment and constantly worsening conditions.
And now that the Greek parliament has voted for further cutbacks national bankruptcy can be avoided on April 20 when major loans fall due, but then it's election time in Greece and the downhill economic slide will continue. The Greeks are wondering just how much worse it must get before things improve.
Unemployment in southern Europe is so high that youth call in question their future in these countries. The speeches and calculations of experts are not seen as being based on any kind of reality and betray instead a great rift between ordinary people and the experts — a democratic deficit that is plain to see especially in countries such as Italy and Greece that lack democratically elected leaders. The risk of populism, unrest and collapse is great.
In the U.S. the domestic situation is gaining ever more attention now that election fever is on the rise. There are positive elements in the American economy and the threat of recession seems more distant. The unemployment figures are positive but the risk of a decrease in a GDP too dependent on consumption (70 percent) is great. House prices have stabilized and even risen in some places, which is good news.
China handled the financial crisis that began in the U.S. by introducing major economic stimuli such as house construction, and large infrastructure and energy projects The question is whether China has created an economic bubble in the construction sector that will become a problem in the year ahead. But the new five-year plan makes it clear that the country will turn its attention inward and focus more on its own development than in the past. China's central leadership understands that the environmental situation is under so much strain that it must soon be dealt with, but in the regions all forms of growth are still portrayed as positive. Angela Merkel visited China in the beginning of February, and Premier Wen Jiabao stated that China could consider helping Europe as developments there are so important for China, which wants to see a stable Europe and a stable Euro.
This year growth in developing countries will overtake that of the established industrial currencies in GDP adjusted for purchasing power, which is a shift of historical proportions. The change can be seen in different ways; three of the world's ten largest companies are Chinese, the world's richest man lives in Mexico, Russia has the most dollar billionaires, India has grown and overtaken Japan's GDP. Change is here and all that remains is to consider ways of approaching collaborative ventures and business deals as new opportunities open up.
Worth Watching in 2012 Capital Mobility
Imbalances between economies are the basic cause of economic problems. The European countries hit by the crisis are those that bought more than they sold while other countries did just the opposite. This has created bottomless seas of debt in some countries and mountains of wealth in others. The underlying factors are competitiveness and efficiency, but imbalances may lead to debates about the danger of the free flow of capital across borders.
Housing Markets are Important Indicators
Housing markets are among the strongest indicators of expectations and apprehensions. When the housing market dips most other sectors in a country are affected.
China Loses Steam
Will China still have the power to be the world economy's locomotive or will its internal problems sap so much of its strength that its role in the global economy declines? There are also signs that China will focus more on Asia and reduce its interest in the West.
Can American Politics be Constructive?
Will the USA reach agreement on how its sovereign debt should be managed or will political bickering lead to such uncertainty that the weak positive trends in the economy slacken?
Japan has a Tougher Time
The IMF warns that the stability of the Japanese economy can change for the worse. Japan's national debt amounts to 220 percent of its GDP, which must surely be the highest in the world. Japan has lived securely by borrowing money from its own citizens, but a rapidly aging population may change the its mind about reinvesting its loans thereby forcing the country to turn to the international credit market. This will mean the end of easy borrowing because, in addition to an aging population, there are problems and risks associated with energy supply.
How Long can Merkel go on?
Germany is the Euro's greatest hope. How long can Angela Merkel go on getting the Germans to agree to ever greater commitments? Opportunities for her opponents to score short-sighted points are on the increase.
Savings and Growth Unwilling Bedfellows
Growth can solve the problem of weak national finances in Europe but at the same time countries must tighten their belts and introduce starvation budgets. This is a difficult equation to balance and the risk of a negative spiral is great. Reforms that promote growth must be introduced.
Banking Crisis Not Yet Over
European banks need to borrow up to EUR 775 billion during 2012 to stay afloat. The problem is the great reluctance to lend to banks, and this may mean an acute banking crisis is just around the corner.
Can Europe's Politicians Grasp the Nettle?
There are many worrisome storm clouds on the economic horizon, and in Sweden there is talk of raising the pensionable age in order to save the welfare system. The solution to the problem resides with the politicians, who must be bold enough to take difficult long-term decisions and gain the support of the people. Expert opinions and printing money will solve no problems; more income and fewer outgoings are what is needed — just like any household budget.
Increasing consumption and major production risks pave the way for rising energy prices. Nuclear power, biofuels and fossil fuels are all associated with risks, but the greatest risks of all are surely created by the situations in Syria and Iran. The closure of the Straits of Hormuz or an Israeli attack against Iran would have an immediate effect on oil prices.
|Box 111 19|
|404 23 Göteborg|
|Telefon.||+46 (0)31 61 24 02|
|Fax.||+46 (0)31 61 24 01|