Global Roundup

On the global economic and financial front, despite the decrease of jobless claims in America and better spending by the consumers, the overall situation remained negative. In the forefront, the financial woes of Ireland have unsettled the entire banking and fiscal system of Europe with pointers that Portugal and Spain are poised to go down the same slippery path. Therefore from Iceland and Ireland to Greece, Portugal, Spain and other countries in the southern periphery of Europe, sovereign debts accompanied by gross mismanagement, speculation and malfeasance have shaken up the Euro, the so-called single currency. Only Germany seems to be floating high.

However, Chancellor Angela Merkel has opinionated that the private sector also has the duty to chip in and help stabilise a highly wayward financial situation in several Eurozone countries. Merkel's proposal has brought lot of criticism. Thus the fiscal fortunes of Europe continue to wobble interminably leaving little apparent hope for even a modicum of social and economic stability in Europe. Now fears have arisen that economic crises presently prevailing in Europe and indeed around the world are threatening to unravel and undo the very foundations of human civilisation itself.

The dollar went up against most of its major counterparts after North Korea and South Korea exchanged artillery fire, encouraging demand for the greenback as a refuge. Last week, China increased bank-reserve requirements following the fastest rise in consumer prices in two years.

(Image source: Worldbunkering.com)

Stimulus plan raises tensions

G20 leaders gathered in Seoul to discuss rising tensions surrounding global fiscal and currency imbalances. The Federal Reserve’s recent decision to buy US$ 600 billion in Treasury bonds came in for particular criticism from Germany and other export-dependent countries that worry about a weaker dollar. Although the American president usually does not comment on the actions of the Fed, Barack Obama defended the central bank’s move, saying its intention was to help the American economy to grow, not to influence exchange rates.

Even the IMF now favours judicious limits on capital surges, if nothing else works. But some capital controls are more excusable than others. To help distinguish good controls from bad, some dos and don’ts endorsed by the G20 might help. Over time, regulation of the capital account might become as respectable as banking regulation.