European Economy is More of a Global Threat than America's
"The
U.S. economy has a recognized dynamism and an unmistakable capacity for
resilience. … In the E.U., difficulties that were once restricted to peripheral
countries now extend to the bloc's heavyweights. … The world will now be even
more attentive to events in the U.S.; because only from there will emerge a breeze
capable of clearing the air of pessimism."
Financial markets move under
the influence of differing expectations. The events of today will probably
weigh less on tomorrow's stock prices, currency values and interest rates than
the prevailing feelings among central market players with regard to medium and
long-term expectations.
Stunned by the way talks played
out between Republicans and the Obama government on raising the U.S. debt
ceiling, markets plunged into a phase of great pessimism.
Particularly on stock
markets, the reaction in recent days was undoubtedly exaggerated, but one
cannot deny that there are concrete reasons for concern. The statement
of the Federal Reserve, the U.S. central bank, after a meeting of its Federal
Open Market Committee (FOMC), shows that authorities foresee a slower recovery for
the U.S. economy. So much so that the FOMC does not expect to substantially alter
the level of basic interest rates before 2013 (currently from zero to 0.25
percent a year).
Although exaggerated, the
reaction of financial markets sounded like a warning - even to developing
countries. In Brazil’s case, we must strengthen our positive economic policy
fundamentals in order to keep inflation at bay and our public finances in
order. From the foreign accounts side of the ledger, the foreign exchange
reserves that the Central Bank has accumulated reassure foreign investors, to
the point that the outlook for Brazil from the most influential ratings
agencies is positive, unlike the United States, which just lost the top rating
of Standard & Poor's, which by the way is an American company.
Although the wrestling match
between the government and opposition in the U.S. has been the spark for this wave
of pessimism, the world has in fact more reason to worry about Europe. The
American economy has a recognized dynamism and an unmistakable capacity for resilience.
Soon after the 2008 crisis, it was believed that loans and junk bonds would
erode U.S. financial institutions - and that many of them would end up collapsing.
This fear has disappeared, and it isn't because of a lack of credit that
consumers are pulling back.
In the European Union, difficulties
that were once restricted to peripheral countries now extend to the bloc's
heavyweights - with no apparent solution on the horizon. And how is it that emerging
economies are able to maintain rates of growth far beyond those in the United
States, Europe and Japan? This is a new framework in which it remains
impossible to venture a guess.
Posted
by WORLDMEETS.US
In this sense,
the world will now be even more attentive to events in the United States;
because only from there will a breeze capable of clearing the air of pessimism
emerge. This will depend on an understanding between the government and
Congress about the direction of public finances. Just like Brazil, the United
States must improve its fiscal policies - a lot - to avoid a chronic fiscal deficit.
