Tuesday, June 19, 2012

Global Economy

Here are few of my observations about happenings around the world:

- It is conventional wisdom that Greek elections do not clear Euro problem as Spanish bonds have already hit high rates and Spain is still in big trouble. Conventional wisdom is right in this case. Further, as elementary politics indicates - Communist parties in Greece Opposition are simply waiting to pounce back and make more chaos in near future (12 months or so). The ideal option was Communists getting the power, Merkel not blinking to their threats, eventually that breaking the Communists and that imparting a resounding message to rest of Europeans in undertaking reforms. We are not there. The situation of Greece is beyond control even for newly elected government while Europe has whack-the-mole game to play.

- Despite G20 pressure, Merkel will continue her approach of 'straddling'; attempting to pursue reforms while dispensing cash grudgingly from time to time. It is unlikely rest of the Europe would learn any reforms from those lessons. 

- Back at home, not much to write about Obama or his political handling of the situation. It seems like even after so much of public prompting for him to step forward and show some  'leadership' in proposing a believable framework to deal with deficits paired with growth strategy; he has decided either it is not politically worth or he does not have any gumption to go there. Unless some foreign policy crisis (quite likely Iran as things are going south there) presents him an opportunity to manifest leadership; the election will be inevitably a referendum on Obama and as things stand he is unlikely to do well.  Though GOP is not bringing anything fresh ideas to the table, 'hanging tough till November' is a sound enough strategy to win political levers.

- Bright spots is Mexico while original BRICS go down. Indian case has been heavily reported and there does not appear any positive catalyst to change things. RBI was right to hold the rates as 'stagflation' is the right diagnosis of Indian Economy which is structurally so distorted due to endemic corruption, lack of functioning court system and unending regional politics. I guess ruling party would be hoping for a good mansoon to cool down temperatures and then find some way. 

- Meanwhile, nothing much worthwhile will happen until leadership change is complete in China, though Communist party would be relieved to see 'media focus slowly going away from Bo affairs' to return to Europe - Euro Championship, followed by Olympics; all on the constant background of Euro crisis.

- Other than these usual suspects list, new hot spots are Syria, Egypt and Pakistan. Courts in later two are extra political players and they are inflicting more damage. All these countries very well may not be part of G20, but trouble in the world invariably comes from those who are 'left out'. So despite the confabulation of G20; all it demonstrates is how little it controls things around the world. 

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