EU Crisis: How to Avert a Global Economic Depression
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The Fiscal Times
June 4, 2012

Remember back in the 1990s, when globalization was supposed to be the greatest thing since Saran Wrap? Maybe someday it will prove to be so, but right now we are walking on the dark side of the moon. Everything seems to happen in concert, or like a chain reaction, in a globalized economy, and that is what we are entering into now. Europe’s problems are spreading to the U.S., and both of them are sending China and India toward their second economic downturns since 2008.

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Only a few months ago, Europeans looked to China to help fortify bailout mechanisms that would keep the EU’s ailing peripheral nations afloat. That option is off the table.

Reflecting weak demand for Chinese exports in Europe and the U.S., Beijing now forecasts a growth rate of 7.5 percent this year. Yes, it is enviable on the face of it, but it will be China’s worst performance since 2008. And as most analysts agree, China needs growth of 8 percent or so to maintain social and political stability.

China’s solution is tried and true among Asians. When the economy slumps, get the public works projects going. It always works, providing you can afford it. In 2008–09, Beijing poured nearly $600 billion into the domestic economy.

This time China will probably put $150 billion or so into new airports, green energy projects, highways, sewage treatment plants, and so on. No official figures have yet been announced.

India is in even worse shape, not least because it is carrying a burdensome deficit and does not have the money to spend its way out of a slowdown. Just before the weekend New Delhi reported first-quarter GDP growth of 5.3 percent, the economy’s worst performance in a decade and down from 9.2 percent in the same period a year earlier. New Delhi had begun the year anticipating growth of 9 percent or higher; India will be fortunate now to make 6 percent to 7 percent, according to new forecasts.

The U.S. economy is a big part of the problem. It is not creating jobs at nearly the rate the world economy needs, to say nothing of the needs of Americans themselves. On Friday, the Bureau of Labor Statistics reported that the U.S. added just 69,000 jobs in May, down from an average of 245,000 in the three months to the end of February. Atop this, we learn that the so-called revival of U.S. manufacturing is creating jobs that are paid too little to make much difference to U.S. consumption. 

A correspondent, editor and critic for more than 30 years, mostly for the International Herald Tribune and The New Yorker, Patrick Smith has also lectured in journalism and media studies. He is the author of five books.