Text size:

  • Small
  • Normal
  • Large

Reach for your wallets

Tensions are rising between Washington and Brussels over the use of fiscal stimulus in the global economy.

Tensions are rising between Washington and Brussels over the extent to which fiscal stimulus must play a role in stemming the slide in the global economy. The Obama Administration has adopted the advice of Larrry Summers and most leading economists to favor a globally coordinated spending increase, Brussels (led by Germany ) favors a more cautious approach, mindful that ballooning public debt could set the stage for inflation at the first sign of recovery. It's not a serious diplomatic issue. France is, after all, still rejoining the NATO command, which says more about the state of trans-Atlantic relations than anything. But many analysts say the Europeans are in denial. I'm not sure which labor figures the Europeans are watching, but inflation seems a decidedly more remote threat at the moment than massive job losses due to a plain-old recession. Massive job losses threaten to unwind the liberalizations that Europe has managed to underake since the EU was formed, reversing labor flexibility and labor mobility and returning the European economy to the rigid, inflexible state it has long been famous for. Europeans have longer memories, of course, and so they keep mentioning the war and Hitler and Weimar inflation to back themselves up. They have at least finally cut interest rates, with the ECB finally relenting and dropping the refinance rate to 1.5 per cent. And Washington suffers from a credibility gap when it argues for increased spending. Amercica's penchant for spending now, saving never, is what set the stage for the current mess, after all. But in this case, the Obamanites are right. The risk is that current fiscal stimulus packages, if unmatched by global trading partners, will end up as subsidies for exporting nations, thereby prompting protectionist backlashes and further unwind international commerce and globalization. US president Barack Obama has, in spite of his own rhetoric, done a commendable job corking the protectionist barbs Congress put into his own stimulus package. But with banks now told they can't give jobs to foreigners, regardless of the skills they bring, his fear has to be that the $787 billion will end up in exporters' pockets and prove Congress right. Japan , for instance, spent billions during its so-called lost decade on stimulus bills that Japanese simply took and invested abroad where they could get higher returns (this was the origin of the carry trade that many economists and bankers say exacerbated the global liquidity bubble). It is incumbent on everyone to stimulate their own economies with at least as much fire-power as the US is doing. Perhaps spending-GDP is the simplest and fairest, albeit blunt, way to measure whether nations are pulling their weight. What everyone seems to agree on is that the IMF needs to have about double the funds it now has to help stem a crisis in emerging markets, particularly in Eastern Europe . Stay tuned, the bill is about to arrive for the Gulf. While talk of asking countries with large accumulated reserves to kick in for the IMF has so far focused on Germany and Japan , it is soon to turn to China and thence to the oil exporters in these parts. warnold@thenational.ae

Back to the top

More articles

Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Above, the private pool of Ocean Heights' five-bedroom penthouse flat. Courtesy Christie’s International Real Estate

In pictures: Penthouse flat is height of Dubai luxury living

A five-bedroom penthouse in Ocean Heights in Dubai Marina is on sale for Dh25 million and comes with a private pool and an unparalleled view of Dubai.

 The cooling towers of the Temelin nuclear power plant near the Tyn nad Vltavou in Czech Republic. The country wants to continue expanding nuclear energy capacity despite cancelling a tender to build two new units. David W Cerny / Reuters

In pictures: Best business images for the week to April 17, 2014

Here are some of the best business images for the week to April 17, 2014.

 Three generations of the Hakimi family tend to their stall Crawford Market in Mumbai. Subhash Sharma for The National

In pictures: Shopper’s delight at Crawford Market in Mumbai

Crawford Market is an old British-style covered market dealing in just about every kind of fresh food and domestic animal imaginable. Later on renamed Mahatma Jotirao Phule, the market remains popular among locals and visitors by its old name, taken from Arthur Crawford who was the first municipal commissioner of the city.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.


To add your event to The National listings, click here

Get the most from The National