Commentary
Ensuring that cities’ perspectives shape international discussions at this year’s forums is not just equitable; it is likely to produce better outcomes.
Liliana Gamboa, Marissa Jordan
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On the Brink
The probability of severe economic consequences around the world is substantial and increasing.
Published on Dec 21, 2011
Is the world on the brink of an economic collapse?
The probability of severe economic consequences around the world is substantial and increasing.
The situation in Europe is not good. There is a major financial crisis building and this is reflected in the real economy with several countries either in or entering recession. But what worries us most at the World Bank given our mandate is the risk of the economic crisis spreading to the developing world.
The situation in Europe is not good. There is a major financial crisis building and this is reflected in the real economy with several countries either in or entering recession. But what worries us most at the World Bank given our mandate is the risk of the economic crisis spreading to the developing world.
Read more
Developing countries are dependent on exports—the weakened demand in Europe is already felt. The banking sector is already seeing the impact of deleveraging in European banks, especially toward Eastern Europe. That is serious, but also there are the connections between European banks and Latin American banks that are different in nature but still bring risk.
There is a possibility that the uncertainty will take its toll everywhere in the world and there will be weaker demand in emerging markets that have until now been the drivers of economic growth. This worry is already being seen in India, Turkey, and Brazil but the risk of seeing this in more countries is real.
Outside the eurozone, the underlying dynamics are actually quite positive. The U.S. economy is on a recovery path with reassuring recent data. And the emerging markets were going to slow down simply because they were overheating and facing inflationary pressures and they need to tighten policy, but the emerging markets could have stayed on a strong, sustained expansion.
The European crisis directly relates to the inner workings of its monetary union and the problems that have built up over the past decade. This is the principal cause of the current uncertainties. And it is no simple matter as the eurozone is the largest bloc in the economic world.
I disagree. The economic crisis is not necessarily a very specific shock coming out of Europe that is directly related to a malfunctioning of the European system. One could even argue that the current economic crisis has little to do with the euro.
We are in the midst of a serious financial crisis that could’ve existed with or without the euro. It is a reflection of the structural problems in high-income countries. For a long time the underlying growth rates have been very modest and the boom periods that come from time to time are more bubbles than real growth based on competitive economies. And the bubbles can’t last, and we see the consequences of this in Europe.
Imagining a world without a euro, crises can still occur and have occurred in the past. What we are seeing is the consequence of over-borrowing, underpricing risk, and the follow up of the huge financial crisis that we went through only a couple of years ago. MORE►
————————
Hans Timmer is the director of the World Bank's development prospects group.
There is a possibility that the uncertainty will take its toll everywhere in the world and there will be weaker demand in emerging markets that have until now been the drivers of economic growth. This worry is already being seen in India, Turkey, and Brazil but the risk of seeing this in more countries is real.
Outside the eurozone, the underlying dynamics are actually quite positive. The U.S. economy is on a recovery path with reassuring recent data. And the emerging markets were going to slow down simply because they were overheating and facing inflationary pressures and they need to tighten policy, but the emerging markets could have stayed on a strong, sustained expansion.
The European crisis directly relates to the inner workings of its monetary union and the problems that have built up over the past decade. This is the principal cause of the current uncertainties. And it is no simple matter as the eurozone is the largest bloc in the economic world.
I disagree. The economic crisis is not necessarily a very specific shock coming out of Europe that is directly related to a malfunctioning of the European system. One could even argue that the current economic crisis has little to do with the euro.
We are in the midst of a serious financial crisis that could’ve existed with or without the euro. It is a reflection of the structural problems in high-income countries. For a long time the underlying growth rates have been very modest and the boom periods that come from time to time are more bubbles than real growth based on competitive economies. And the bubbles can’t last, and we see the consequences of this in Europe.
Imagining a world without a euro, crises can still occur and have occurred in the past. What we are seeing is the consequence of over-borrowing, underpricing risk, and the follow up of the huge financial crisis that we went through only a couple of years ago. MORE►
————————
Hans Timmer is the director of the World Bank's development prospects group.
About the Authors
Hans Timmer
Uri Dadush
Former Senior Associate, International Economics Program
Dadush was a senior associate at the Carnegie Endowment for International Peace. He focuses on trends in the global economy and is currently tracking developments in the eurozone crisis.
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
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