Column : A year to forget

Dec 31 2012, 20:55 IST
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SummaryFootball, as they say, is a game of two halves. The year that has just ended was a year with a dismal first three quarters and a better last quarter.

With Chidambaram back in finmin, reforms were revived. But the UPA may not reap the fruits of its belated good actions

Football, as they say, is a game of two halves. The year that has just ended was a year with a dismal first three quarters and a better last quarter. We are not out of the woods yet, but there may yet be the end of the tunnel not too far away.

The eurozone came near to breaking up or at least ejecting Greece. Various dire threats were issued, elections held, which threatened the worst. But, in the end, the misery, which is endless, was given renewed support. Greece will take the poisoned chalice and drink it. A whole generation of Greek youth will have their lives blighted. The European Central Bank (ECB) became the only authority among many others that was decisive. Its proposal of bailing out countries if they asked for help was a brilliant confidence trick. No country would be likely to ask for such help as it would indicate to the markets that bankruptcy was imminent. Markets would act faster than the ECB and, hence, no country, not even Spain, asked for help. The ECB is a class central bank and knows a trick or two.

Yet the longer-run prospects for the eurozone are dim. None of its structural problems are resolved. A tighter fiscal union would suit the northern countries if it did not bind them to rescue the weaker southern members. There is no proposal to have a eurozone-wide tax that could be used for transfer payments, which is what is needed. The eurozone is an experiment in Hayek’s proposal of a ‘denationalised money’ and there is a lot of learning for the eurozone countries to do as to how to live in a renewed Gold Standard without discoveries of gold deposits in California or Australia to ease the burden of deflation. What we have, instead, is a Banking Union, which gives the ECB the right to supervise 6,000 banks in the eurozone. We will see if it works.

The UK has a plan to eliminate its budget deficit over five years and it is quite clear that the recession in its neighbouring countries is delaying the recovery. Even so, the UK can print its own money and has been doing so. Like in the US, the Quantitative Easing (QE) has had dubious success. The only argument

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