Monday was not the happiest of days for the euro zone, with the International Monetary Fund cutting its forecast of growth in 2013. It is a sign that the measures so far taken by European institutions and leaders are not enough to spur growth and assuage markets.
While growth for 2012 remains at 3.5 percent, the IMF’s estimate for 2013 growth is now 3.9 percent, down from an estimate of 4.1 percent in April. By way of comparison, in 2010, the world economy grew 5.3 percent.
Moreover, these modest forecasts may be further lessened due to “downside risks” if more aggressive measures are not taken.
The effects of the euro zone crisis are registering far beyond Europe’s borders. As the New York Times details, the countries seeing the largest reductions in expected growth due to a global economic showdown are Brazil, India, the UK and Korea and Singapore.
The IMF also took the US, whose economy is the world’s largest, to task. Clearly remembering the protracted negotiations to raise the debt ceiling last summer, the IMF also called on American legislators to avoid the “fiscal cliff” and raise the debt ceiling “promptly.”
But European countries received the harshest censure. The measures suggested were not new — a stronger banking union, increased monetary easing, better plans for making cuts to budgets — but the question remains if European countries can make these and in time to fend off a deepening of the crisis.
The news that a German constitutional court will not announce its ruling on whether the European bailout fund is legal until September 12 was a disappointment. Clearly being told two months down the line that the European Stability Mechanism (ESM) does not accord with German law would be problematic.
A look at Spain would shake confidence in such. Hundreds of civil servants took to Madrid’s streets to protest the €65 billion austerity plan announced by prime minister Mariano Rajoy last week. From the Kuwait Times:
Thousands of Spanish “indignant” protesters rallied against austerity cuts Friday night before some of them clashed with police, who charged demonstrators with batons. Surrounded by 20 police vans, they stood outside the headquarters of the Popular Party (PP) of Prime Minister Mariano Rajoy and shouted “resign, resign!” and “they are lining their pockets!” Carrying signs that read “They call it democracy, and it isn’t”, they then headed for the headquarters of the opposition Socialist Party, which they also accuse of incompetence in the face of the crisis.
Workers blocked streets and railways in Madrid, protesting against cuts which they said hurt ordinary people more than the bankers and politicians blamed for the country’s economic crisis.
Unions in Spain have called for a strike in September. As Deputy Prime Minister Soraya Saenz de Santamaria said: “Spaniards are living today one of the most difficult and traumatic moments of our history.”
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