Financial Times
September 25, 2011
At the gloomy IMF/World Bank meetings in Washington this weekend, everyone seemed to agree on one thing, and one thing only. The European debt crisis is now by far the most urgent matter facing the world economy. Not only has it already taken the Eurozone to the brink of renewed recession, but it threatens to envelope the rest of the world as well. ”The threat of cascading default, bank runs, and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally”, said US Treasury Secretary Geithner. He is right. But there is still no unanimity on what exactly should be done to take take this catastrophic risk off the table.
In the last week, there were unmistakable signs that Europe’s financial crisis is now developing into an economic crisis as well. The PMI business surveys for September fell below 50 in the eurozone, and consumer confidence dropped ominously. Although the business surveys still seem to be consistent with a positive out-turn for real GDP growth of around 0.3 per cent in the third quarter, the downward momentum in the forward-looking components now seems strong enough to threaten negative growth in the fourth quarter.
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