What dreams can we have in 2013?

The global economy is entering 2013 with a number of handicaps: eurozone crisis, decelerating growth in emerging countries and Japan, and restrictive fiscal policy in the United States and the United Kingdom.

We could “dream” that in view of these problems, the economic policies conducted worldwide would become more effective and more cooperative: change in strategies in the eurozone, non-aggression pact for exchange rates and a coordinated global economic stimulus in countries where there is a leeway. We should be concerned about the situation of the global economy in 2013, due to an across-theboard slowdown in growth that can already be seen, with a 5 percent year-on-year decline in global trade in value terms. The eurozone will be mired in a recession, due to restrictive fiscal policies, falling real wages outside Germany and a decline in investment — even in Germany — because of weak expected demand.

The major emerging countries and Japan are struggling: due to sharp wage increases, a loss of competitiveness in China and signs of deindustrialization, reflected by the 14 percent year-on-year decline in imports of capital goods; a number of bottlenecks in India, in the labor market and in the energy sector, leading to stagnation in industry; overvaluation of the exchange rate and deindustrialization in Brazil; and destruction of production capacity as a result of the tsunami and excess corporate savings in Japan. This is dragging many Asian and Central European emerging countries into a situation of sluggish growth or even recession. Lastly, the fiscal policy tightening in the United Kingdom and the United States will slow down the economies.

In view of this state of bad news, we could dream that the world would organize and implement more effective and cooperative economic policies. Let us give three important examples. European authorities could understand that the strategy implemented in the eurozone is a failure and has led to a deadlock. The shortfall in activity and the rise in unemployment due to restrictive fiscal policies and falling real wages are not a step toward an improvement in the economies of the eurozone countries in the future. On the contrary, we can see that the fiscal deficits are no longer shrinking and have even got worse between 2011 and 2012 in Spain, Italy, France and the Netherlands. Also, the economies’ supply capacity is deteriorating because productive investment is declining and companies are destroying production capacity at a very rapid pace in the industrial sector in Spain, Italy, Portugal and Greece.

The eurozone should therefore have the courage to switch to a different strategy that would focus on boosting long-term growth, with investments in energy, infrastructures and education financed by Europe, whereas public investment is actually declining at present. The fiscal deficit reduction should not resume until growth starts to recover.

The second dream would be that the large countries would stop trying to improve their economic situation at the expense of other countries by weakening their exchange rates. One of the clear — if not explicit — objectives of the highly expansionary monetary policies being conducted in the United States, in the United Kingdom and once again in Japan is to weaken their exchange rates, and this has started to have a certain impact on the dollar and the yen. China is once again accumulating foreign exchange reserves to prevent an appreciation of the RMB. The losers from these policies are well known: the eurozone, which has no exchange-rate policy, and the emerging countries that do not intend to prevent the appreciation of their currency against the dollar, for example Brazil and, in the recent period, South Korea.

Lastly, the third dream would be that, since global growth is slowing down, the countries that have the possibility would conduct policies aimed at boosting their domestic demand in order to stimulate the global economy in a cooperative manner.