By Kemal Derviş – It is now clear that the eurozone crisis will continue well into 2012. The ECB’s generous provision of liquidity to European banks at only 1% interest for up to three years has prevented a banking crisis from piling on top of the sovereign-debt crisis. But that initiative has not succeeded in reducing the “problem” countries’ longer-term borrowing costs to levels compatible with their projected growth rates.
Beyond the specific problems of the monetary union, there is also a global dimension to Europe’s challenges – the tension, emphasized by authors such as Dani Rodrik, and Jean Michel Severino and Olivier Ray, between national democratic politics and globalization. Trade, communication, and financial linkages have created a degree of interdependence among national economies, which, together with heightened vulnerability to financial-market swings, has restricted national policymakers’ freedom of action everywhere.
Around the world, the stock of financial assets has become so large, relative to national income flows, that financial-market movements can overwhelm most countries. Even the largest economies are vulnerable, particularly if they are highly dependent on debt finance. more> http://is.gd/cHymfk
- Rodrik: Free-Trade Blinders (economistsview.typepad.com)
- Liberalisation is only as strong as the constituency for liberalisation (economist.com)