The crisis isn’t global, it’s peripheral

November 30, 2010

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

LONDON — First Greece, then Ireland, next Portugal? It would be easy to think the whole world is sinking. It isn’t. Small euro zone periphery economies are in deep trouble. Spain, if it sinks, which it might, is larger and would force a more expensive and problematic rescue by the euro zone. But for the global economy the periphery is a side show. For now world economic prospects don’t look bad at all.

Even in Europe there is life at the core. The German economy will grow by close to 4 percent this year. Investment in machinery and equipment is booming as Germany re-equips itself for exports, whose earnings were up by 22.5 percent in September. German consumers are responding, too, though none too boldly. Consumer spending rose by 0.4 percent in the third quarter.

Germany’s revival is linked to the resurrection of the great U.S. consumer. In the United States spending by consumers on durable goods has been rising at annualised rates of over 7 percent in the first three quarters of 2010. As the United States spends again, its trade deficit is widening. It was $44 billion in September, not far off double the $25 billion of May 2009 when the global downturn was at its worst. Germany, Japan and other exporters benefit.

China and emerging economies are among them. China’s GDP is expected to grow, again, at a 10 percent rate this year and next. That is keeping commodity prices high, helping raw material exporters. The West sees opportunity and is pouring investment into emerging economies. Issuance of local currency bonds in emerging East Asia has risen by 17 percent in the past year. India is in good shape too.

There are risks in the recovery of course. Quantitative easing and low interest rates in the developed world are behind some of the almost certainly excessive flow of capital to the emerging world. More damaging bubbles risk being blown. And the world’s reliance on a big U.S. trade deficit is growing again.

But for now the world can be pleased about one thing. It’s the peripheral economies that are blowing up. Big ones like the United States and Germany are getting better.


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Peripheral? Rigggggggght. Just like the Bank of the United States was peripheral, or Credit Ansalt, or Bear Stearns or Lehman, I can keep going if you’d like.

Posted by charlesv | Report as abusive

A highly optimistic view. Just conveniently forgot the
– high level of debt of US consumer
– high level of debt of the US govt and EU govts.
– high level of muni debt
– high unemployment in US and Europe
– austerity programmes in western economies
– high inflation in bric and measures they are taking to cool down and pop some bubbles.
– banks who would be insolvent if they had to mark to market especially with housing in western economies showing no sign of stabilising.

QE2 has given the US consumer some spending power, there is too much criticism from everywhere for there to be a QE3 or 4. Just printing some money to get a burst of good economic data and a blip up in stock markets doesnt change anything

Posted by shivers1 | Report as abusive

Thanks for an upbeat – and realistic – take on recent developments. The gloom trade is WAY overdone, and the time is long overdue for some optimism.

Posted by Gotthardbahn | Report as abusive