Recently stock markets around the world witnessed a temporary rally. The reason was expectations of positive announcement by eurozone leaders to salvage the region from the sovereign debt crisis. It was thought that these leaders together would come up with some concrete plan to save the euro currency. Therefore, investors thought that the global economy would get some relief! Were these expectations right? We really do not think so.
Eurozone economies are in the throes of a serious crisis which will have far-reaching ramifications of the global economy. And European leaders have acknowledged this very late, that too after receiving tremendous pressure from the rest of the world. Now they are focusing on issues which need to be addressed immediately. Now they are thinking how to save Italy from falling into the crisis. They are making plans to strengthen the European banks. And the most important, they are taking Greece more seriously.
All this sounds good. But it is not going to be easy. The reason lies in the disagreements among these leaders. For example, German leaders are against the expansion of the European rescue fund because they think reckless financial easing is the very reason for the problem.
So far there is no concrete plan on the table. These leaders have just planned to have a plan. Let us assume for a moment that they really come up with a great plan. Then what about the worsening economic situations of global economy? It is only going to be deteriorated by the austerity measures taken by the richer economies. Economic indicators are showing that Europe is slipping into recession. The American economy is slowing as well. Weakening consumer confidence would further worsen the situation. Political scuffle between Republicans and Democrats is adding more problems. As far as the emerging economies are concerned the biggest economy in this region, China, is not in a position to provide stimulus measures like it did in 2008-09. Anyway, emerging economies do not have strength to prevent the world from slumping into recession.
What is needed at this moment is honesty. The world leaders need to first accept the problems, not to just gloss over the situation. The latter only worsens the situation. Having said that, even with the right will and courage, the situation seems to be going out of control as of now.