Davos doubts center on EU, world economy

Jan. 27, 2012 at 3:12 PM   |   Comments

DAVOS, Switzerland, Jan. 27 (UPI) -- High-powered talks at the World Economic Forum in the scenic Swiss resort of Davos have failed to dispel anxieties and gloom over the future of global economy and immediate and pressing concerns in Europe over the fate of the EU and the eurozone.

Senior economists differed on whether a hairline global recovery could be around the corner but, in comments, agreed that Europe, including countries outside the EU, faced unforeseeable risks over debt-ridden economies teetering on default, ratings downgrades and resulting political turmoil.

Most of the optimism over the global economy was rooted in U.S. data -- not European reports. The U.S. economy grew in the final three months of 2011 at an annualized rate of 2.8 percent.

The U.S. Commerce Department figures gave participants hope the trans-Atlantic trend could rub off on Europe somehow. At present, though, European outlook is grim. The total number of Spanish jobless crossed 5 million during the same quarter.

Spain's 22.8 percent jobless rate -- double the average for the 17-nation eurozone -- revived fears that Spain could slump deeper into recession and join the EU queue of member nations in need of expensive bailouts or other aid efforts.

Spain was among five EU nations downgraded by Fitch Ratings Friday.

The glitzy jamboree of the rich and famous in Davos was an unlikely setting for warnings of economic cataclysm, a contrast to previous WEF meetings, noted for their upbeat rhetoric and grandiose proclamations.

Financier George Soros warned extended EU stagnation and the lead member governments' policies could destroy the union.

He urged Germany to find ways to stimulate EU's economy, echoing earlier comment that European leaders weren't doing enough to protect other economies against a Greece-like meltdown.

Europe is likely to face a "lost decade" similar to what happened to Latin America in the 1980s, Soros told the BBC.

Talks on saving Greece are anything but conclusive. Officials said further negotiations would be needed over the weekend to secure a deal with Greece's creditors.

"We're very close," European Union Economic Commissioner Olli Rehn said, adding talks would aim to clinch a deal before January was out. German Finance Minister Wolfgang Schaeuble said he, too, was hopeful of a debt deal being reached soon.

The European Council of all 27 EU leaders is to meet in Brussels Monday. In the meantime, the EU has renewed calls for the Obama administration and non-eurozone Britain to pour funds into the International Monetary Fund as a bulwark against sovereign defaults by troubled EU members.

Greece is at the head of the queue again, in need of another tranche of bailout aid to help it repay some $19 billion in bonds falling due March 20. This time, however, any new negotiated debt deal may spell trouble for both private bondholders and public lenders.

Fitch Ratings Friday downgraded the sovereign credit ratings for Belgium, Cyprus, Italy, Slovenia and Spain, citing their vulnerability to monetary and financial shocks.

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