A day after the victory of pro-bailout parties in the elections in Greece gave a much-needed breather to struggling Euro zone economies, heads of the G-20 nations on Monday started deliberations to ward off a crisis the global economy stared at.
The severity of the crisis this time can be gauged by Prime Minister Manmohan Singh’s statement immediately after he landed here to attend the two-day G-20 meetings. “The world is in deep trouble,” he said.
Singh said he hoped the G-20 meetings, in which US President Barrack Obama and key Euro zone leaders like German Chancellor Angela Merkel, French President François Hollande and British Prime Minister David Cameron were also participating, would throw up constructive proposals to pull the global economy back from the crisis.
So far, economic woes have been confined to nervousness in the markets. These were yet to result in a full-blown crisis, said Montek Singh Ahluwalia, deputy chairman, Planning Commission. Ahluwalia, who arrived here before Prime Minister Singh, said, “Rather than the actual crisis, it is more of market nervousness and uncertainty, triggered by lots of weakness in the Euro zone banking system.” He said if the situation was not handled well, it would lead to a second crisis (after the one in 2008-09). “The second crisis would be more serious, as most countries have exhausted their firepower. There is not much of fiscal room available now,” he said.
He added the crisis would have to be managed by Euro zone countries. The G-20 would not come up with a rescue package to salvage the situation. The International Monetary Fund, too, didn’t have unlimited resources to help the region, he said. He added if the European Union was clear on how to handle the crisis and give that signal, it would calm markets. “It is a different matter whether it would see rapid growth. There are two issues. First, would there be a banking collapse in the Euro zone, along with flight of capital and deposits from banks, as had happened in Greece? The second issue is whether Europe would grow, against expectations of negative growth this year,” he said. Ahluwalia hoped the European Union would be capable of giving clear signals it was going to prevent a financial collapse.
On the G-20’s role in tackling the crisis, he said it was more about coming to an agreement on how to tackle the problem. If all the countries, including Euro zone ones, agreed on how to handle the problem, financial markets would get a sense of their plans.
He said instead of knee-jerk reactions from various economies, G-20 countries would be willing to commit themselves to sensible action if these knew other countries would support global efforts. “Governments know they are being watched by markets; governments know they are judged against what they do on their commitments,” he said.
On the economic woes back home, Ahluwalia said India would not seek any specific assistance from the G-20. “We are fortunate to not be in a position in which we would be looking at any kind of emergency assistance,” he said. He refuted allegations that the government was in a denial mode over the economic slowdown in the country. “It is factually wrong that the government is in a denial mode.
It is factually correct we have slowed. It is true the slowdown was more than what we expected it to be. But remember, global growth also slowed more than anyone had expected it to,” he said.
