Leading economists optimistic at TA conference

"The global economy should be in good shape despite ongoing turmoil in Europe and the United States."

December 11, 2011 23:50
3 minute read.
Olivier Blanchard, IMF

Olivier Blanchard IMF 311. (photo credit: REUTERS/Handout)

The global economy should be in good shape despite ongoing turmoil in Europe and the United States, three of the world’s leading economists said Sunday at a business conference in Tel Aviv.

International Monetary Fund chief economist Oliver Blanchard, Goldman Sachs Asset Management chairman Jim O’Neill and McKinsey & Company managing director Dominic Barton participated in a panel hosted by CNN’s Richard Quest at the annual Globes Israel Business Conference in Tel Aviv.

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Blanchard said the decisions made by European leaders in the past month, including a deal struck in Brussels last week, made him more optimistic than before.

“The first step is to make sure the countries really have plans to control their debt,” he said. “The choice of government in Italy is very important, but the next step is to make sure they can do it, and that’s where the ‘bazooka option’ comes in,” he said, referring to the prospect of aggressive European Central Bank action in the bonds market.

“My impression about what Europe is doing – and this is where the IMF can help – is to build a bazooka piece by piece. We’re not far from something which looks like a bazooka.”

European leaders agreed in Brussels on Friday to draft a new treaty for deeper euro-zone economic integration, although Britain, the region’s thirdlargest economy, refused to join the 17 euro states and nine other EU countries in the fiscal union.

“I’m actually more optimistic than I was a month ago. I think there has been progress,” Blanchard said. “What happened last week is important; it’s part of the solution, but it’s not the solution.”

Asked whether diverse statements from policy makers in Europe were causing volatility in markets, he said: “A lot of the volatility is coming from statements from Europe, showing the range of opinions and inability to get to a logical decision process.”

O’Neill disagreed with Blanchard’s assessment, saying the ECB might need to do more than promised in Brussels to solve the crisis. Europe’s troubles were not reflective of the entire global economy, he said, adding that in the next year the four BRIC countries (Brazil, Russia, India and China) would collectively create the equivalent of another Italy in dollar terms.

“You’d think with what’s being said in the media, that the world was already in recession,” O’Neill said. “This year the world [economy] will have grown at 5 percent, and next year it will be 3.5 percent or more.”

“The most important news on a truly global basis last week was not the bungled euro deal,” he said. “It was the fact Chinese inflation dropped to 4.2% [in November] from 5.5% [the previous month]. The problem in Europe isn’t really a debt crisis; it’s a crisis about the structure and leadership of the EU.”

Although most of the discussion focused on the global economy, the panelists were also asked to comment on Israel, and all agreed it was functioning well compared to the rest of the world.

“I think many countries around the world would be happy to have such a growth rate, especially in the developed part of the OECD,” Barton said. “The only thing I would say is that it’s imperative that Israel be linked up to these BRIC and African markets in a significant way.”

Reuters contributed to this report.

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