Getting Real About Global Economic Crisis

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wolf.jpgI'm just returning from two days with members of the Global Council network of the World Economic Forum held annually in the UAE, this year in Abu Dhabi.  I was a guest of the WEF and participate as a member of the WEF Global Council on Geopolitical Risk.

Despite having quality, sobering discussions with a number of interesting people about the fragile state of global geoeconomic and geostrategic affairs, including former UK Prime Minister Gordon Brown, former NM Governor Bill Richardson, Kissinger Associates China expert Joshua Cooper Ramo, Eurasia Group president Ian Bremmer, Saudi media mover Jamal Khashoggi, IMF US alternative director Douglas Rediker, and others -- the general mood there seemed to be uncomfortably positive.

Not sure why this was.  Perhaps some folks who attend the Global Councils meeting are so deep into their various NGO terrains trying to alleviate poverty, curtail pandemics and disease, deal with water shortage problems, enhance human rights and the like that the fragility of the developed economies doesn't really rank as a big concern.  Maybe World Economic Forums and the network of business leaders and economists just naturally tilt to more positive takes on the globalization track and downplay the downsides.

I'm not sure.

That said, when I boarded the plane returning back to the US, I caught a refreshingly candid snapshot of the world's precarious situation by the Financial Times' Martin Wolf titled "Do Not Mistake First Aid for a Cure."

Two short clips of Wolf's piece which ran Wednesday, 12 October dealt with defining the severity of the looming eurozone crisis but also explored why the more optimistic version of a one for all and all for one Europe is delusion unless the strongest economies accept the burden of carrying the weaker ones -- and the weaker ones accept that they won't have the same options and power of Europe's core states.

Wolf's comment that this is a very serious -- really, really serious -- mess:

Nobody now sees the eurozone crisis as a little local difficulty.  It has become the epicenter of an aftershock of the global financial crisis that could prove even more destructive than the initial earthquake.  Potentially, it is a triple shock: a financial crisis; a crisis of sovereigns, including Italy, the world's third largest sovereign debtor; and a crisis of the European project with unknowable political consequences.  it is no wonder people are frightened.  They ought to be.

And then his comment about Europe's glue coming undone:

As I have long argued, at bottom this is far more a balance of payments crisis rooted in financial sector misbehavior and cumulative divergence in competitiveness, than a fiscal crisis.  The architects of the eurozone thought that balance of payments crises were impossible in a currency union.  They were wrong.  In the absence of automatic cross-border financing, and unfinanceable external deficit will emerge as a domestic credit crisis.  Then, even currency risk will return if the union is among largely sovereign states.

Martin Wolf does regularly attend World Economic Forum meetings around the world.  I often see him at the WEF New Champions meetings in China -- but I think folks need to consider diminishing Wolf's status as a contrarian -- as his views need to be more aggressively considered, digested, and made mainstream if the world's leaders are going to process the right benchmarks for action and have a chance at sidestepping catastrophe.

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Steve Clemons is Washington editor at large for The Atlantic and editor of Atlantic Live. He writes frequently about politics and foreign affairs. More

Clemons is a senior fellow and the founder of the American Strategy Program at the New America Foundation, a centrist think tank in Washington, D.C., where he previously served as executive vice president. He writes and speaks frequently about the D.C. political scene, foreign policy, and national security issues, as well as domestic and global economic-policy challenges.

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