It seems that there is no end to this long period of economic turmoil that started almost two years ago. From the beginning of this year there has been a steady flow of good news indicating that the world economies were indeed on the mend.
The rate of job losses is slowing down in most western economies, many major companies are reporting improved profitability, and the US economy is once again creating more jobs than forecast. Equity and capital markets seemed to be enjoying this series of good tidings. But this Indian summer has once again been brought to an abrupt end by a mighty storm.
The Greek debt crisis is dragging the world economy into yet another black hole and, so far, it is far from clear how this most recent crisis of confidence will be resolved. The €750 billion bailout by the EU and the IMF was most welcome, but few believe that it will indeed be the end of the horror story of unsustainable sovereign debt.
Only a year ago, on its 10th anniversary, the euro was showered with praise by most economists because of the way it had enhanced the European business environment. There was premature talk that it would soon replace the US dollar as the world's preferred reserve currency.
But for those who were capable of looking beyond the headlines proclaiming the euro's unmitigated success, the structural flaws in the rulebooks that support the single currency were all too obvious. With fiscal policy left in the hands of the 16 member states of the eurozone, enforcement of fiscal rectitude in accordance with the terms of the Stability and Growth Pact remains the Achilles heel of the euro.
The creation of an essentially weak government in Britain is adding to the economic uncertainty being faced by Europe. With economic power shifting steadily to the east as a result of globalisation, European political leaders have so far failed to come up with credible plans on how they intend to fix the litany of weaknesses that exist in their sclerotic economies and create a new paradigm of economic growth.
On the local front, the latest European Commission report on the Maltese economy contained the now familiar bag of mixed news. The Maltese economy has performed better than most other eurozone economies in 2009 and it is likely that our economy will grow faster in this and next year than the eurozone average. This growth will be mainly the result of money flowing from Brussels and the local government for major public investment projects.
The flies in the ointment will continue to be the unsustainable way we finance public services, and the fall in our competitiveness. Put simply, while the short-term prospects for a modest recovery are relatively good, we are still not doing enough to tackle the long-term issues.
The return of volatility in the western economies is not, as Europe's leaders would like us to believe, a result of speculative greed. On the eve of the €750 billion Greek bailout, French President Nicolas Sarkozy was quoted as saying: "The euro is an essential element of Europe. We cannot leave it to speculators".
Angela Merkel was far more honest when she insisted that the rulebook of the Stability and Growth Pact needs to be rewritten to rid the eurozone of irresponsible politicians who are prepared to risk the future of the euro by running up excessive sovereign debts. It is comforting to know that the "sovereign bond vigilantes" are not simply disguised speculators, but political leaders who are prepared to acknowledge that Greece's problems are deeper than they seem.
Our political leaders in Europe need to move away from the crisis management mode that has characterised their behaviour in the past two years. They should adopt a bolder role by devising a new economic model that will create jobs in the context of economic globalisation that has seen low-paid jobs being exported to emerging economies in Asia and South America.
Market volatility will continue as long as our political leaders continue to shy away from prescribing the bitter medicine that EU economies need to get back on viable and sustainable economic growth.
The future of the euro has never been in such doubt because the rules that support it are now grossly inadequate. Sustainable public finances, a new economic growth model and the restored reputation of the euro are the nirvana that Europeans are dreaming of.
jcassarwhite@yahoo.com