Tuesday, June 19, 2012

What has changed Between Then and Now*?

Since 2011, we are faced with a situation where most analysts have come to agree that Europe needs fiscal integration with a fiscal authority and banking integration, a banking union with eurobonds, a banking supervisor and a European guaranteed deposit fund. Most agree even more that European deposit insurance and debt mutualisation are not optional; they are essential to avoid an irreversible disintegration of Europe’s monetary union as the ERF is a temporary programme that does not lead to permanent euro zone bonds. The main problem remains that any proposal acceptable to Germany could imply a significant loss of sovereignty over fiscal policy for the periphery, particularly Italy and Spain. On the other hand, German concerns about the moral hazard of risking German taxpayers’ money will indeed be hard to justify if meaningful reforms do not materialise in the periphery. But such reforms do take time and the human costs being inflicted in the process are turning out to be more than significant.

Coming Home, the headline figures for economic growth in India have been revised downwards; despite putting in place policy measures that have choked domestic demand and hence growth, prices continue to rise; government spending continues to grow faster than tax revenues, private and foreign investment have slowed down and the rupee has been devalued sharply by market forces, with the rupee hitting an all-time low against the dollar in late-May. Every discussion on the Indian economy centres around the need for filling chronic gaps in areas like infrastructure, skilled labour and productive farming, or on the inefficiency of the system of subsidies. Yet the government remains undecided on crucial issues like removing certain barriers to investment that could put growth back on track, while the central bank is circumstantially forced to remain hawkish in stance even though the latest numbers on growth and inflation increasingly have a stagflationary ring. Yes even in India there is a human cost involved in achieving a 6% vs a 9% growth, which may go un-noticed as the notional loss of being able to change the lives of several waiting to be pulled out of poverty and unemployment.

Missing is the swift and almost unanimous decisions taken by policy makers/implementers through the globe and missing is the flurry of actions taken to stem the Meltdown of 2008. As Time Slips By policy implementers are bent on Defying Gravity and say they are In Control and keep waiting for the Panic Attack. We are left to be Saved By A Miracle, wondering what has changed Between Then and Now? While they found institutions too big to fail they are not so unwilling to fail the very people for whom the institutions supposedly are set up. When would the time be right to come out of the moralistic view on the burden of future generations and look to the sufferings of the present one? If I Could I would be a Time Traveller to Check It Out if ignoring the Echoes and Shadows of Yesterday did we walk Into The Sunset or did we win our Race With Destiny.

(* a la Vinnie Moore)
Get regular updates on Growth, Inflation and other Indian & Global Macro-Financial indicators/data with E-UpDates—A Monthly Statistical Bulletin by Ecofin-Surge.

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