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By DEAN CARROLL | 30.06.2011
This week, China made clear its intention to buy up government debt in Europe. The country’s $3 trillion currency reserves, the largest in the world, have already started to diversify holdings beyond US dollars. So there could be hope for Greece even if the European Union and the International Monetary Fund turn away, as a result of austerity measures not being implemented.
But even in the east, there are storm clouds looming. China’s prolonged and commonplace double-digit growth will come to an end eventually. Aside from the embryonic bubbles in the Chinese economy, we can see from history that when developing countries make the transition into developed nations, long-term economic growth slows from a sprint to a plodding walk at best – if they are lucky enough to overcome the worst effects of the inevitable financial crises along the way. The way things stand at the moment in Europe, it seems the west has failed in that respect.
Some now say that the might of the German economy – currently considered to be Europe’s rock – has been overestimated. Chief economist at the Centre for European Reform think-tank Simon Tilford’s interesting paper, ominously titled “Germany’s brief moment in the sun”, warns of “good reasons for thinking that its economic and political ascendancy will be short-lived”. After all – just four years ago, Germany was considered to be the sick man of Europe. And it still suffers from higher than average levels of public debt, an ageing population, excessive export dependence and the often-heralded manufacturing sector accounting for just a fifth of economic activity. Tilford suggests that Germany’s economic recovery is “almost entirely down to a cyclical rebound in exports and investment”. He adds: “There are mounting risks of a synchronised global slowdown – including in the hitherto booming Chinese economy.”
Printing more money can only take you so far, as Zimbabwe has shown us. Meanwhile, even in the east there are possible financial busts on the horizon – resulting from the current booms. Is it time for Europe and the west to accept that super-charged economic growth will never return? It is a very difficult question to ask, but one that governments should ponder nevertheless.
Published in PublicServiceEurope.com.