The worth of the financial support and the commitments of the sound finance management

What should be managed that the €440bn European Financial Stabilisation Facility would be enough to bail out 16 eurozone countries? Is it the European nations’ public debt, liquidity and solvency of banking sector or the stability of currencies? The many will agree that the outcome of the support depends mainly on who is responsible to clear up the mess.

Could the international authorities be treated as the boss who safeguards financial stability by tightening capital and liquidity requirements for financial institutions and setting the robust conditions for bail out entities? The new regulations only change the business rules, and the financial support is just the reallocation of funds. What if the national governments were the superiors? Looking carefully at the policies that are lacking of efficient allocation of public finance and consequently, imposing higher taxes, do not raise too much confidence. Eventually, let us to consider the entrepreneurs. Their successful business insights may create a tangible value that is needed to shift uncertainty regarding the financial collapse into the sustainable development.

Thus, what is the worth of the financial support and the commitments of the sound finance management if essential public and private sectors’ cooperation is eliminated.

When the money supply follows the demand

Cheap production is dominating as consumers are highly price sensitive. Such being the case, economy stimulation by using monetary policies that devaluate the national currencies and boost exports are superior to the commitments to ensure the stability of the currency.

Increased liquidity in US by implementing QE2 will devaluate the dollar, but most likely will not serve to develop national businesses, because loose capital has a tendency to flow into emerging economies that generate higher returns. As long as the economy of the emerging countries mainly depends on the exports, the low value of the national currencies remains a prime goal as well. However, emerging counties have advantages in the war of currencies. Asian countries imposed taxes to restrict capital inflows and acquired foreign assets probably will generate additional incomes. So, we may expect larger economic imbalances in the future.

Even though the agreement to control the economy growth by limiting current account surpluses and deficits to 4 percent of GDP was reached at the G20 meeting in Seoul, is it possible to manage instability when the money supply clearly follows the demand?

How fiscal and monetary policies match the common goal?

The recent Republicans' victory in the US midterm Congressional elections and the Federal Reserve’s proposed quantitative easing policy QE2 are the most significant events that could influence the trends of global economy and stability of the financial markets. Fiscal policy makers intend to reduce budget spending, promote efficient governance and resist increasing taxes. However, measures that are dedicated to recover the current US economy by reducing the national debt and stimulation of business development are implementing together with financial markets destabilisation monetary policy as purchase of $600 billion in long-term (7- to 10-year maturity) U.S. debt will increase liquidity, keep low long term interest rates, depress the dollar’s international value, raise the price of commodities and shares. These opposite outcomes of the political decisions raise the following question: how two independent fiscal and monetary decision making powers of the world’s largest economy country match the common goals to recover stability of the national and global economy?

The main goal of economy development strategy

What if economy development strategies were based not only on strengths to realize opportunities but also on reduction of weakness and threats? What if increased efficiency and hedged risks were treated as the main sustainable competitive advantages and became the key goal and focus instead of the macroeconomic indicators such as GDP, unemployment rate and CPI? Then we could avoid political and diplomatic manipulations, reach stabilization and stimulate sustainable growth of economy much faster.

 

Economy is global, business - international

Prevailing imbalances of the global economy set the background of the business environment. Even though the domestic growth of economy remains the main target of each country the tasks are specific that leaders have to solve. Large deficits encourage reducing excessive spending so that the recovery was not frustrated and huge surpluses requires to find out the means of the enlarged domestic demand. The time will show whether this is a period of the emerge of a bright leadership or the manifest of the purely self-stabilization economy mechanism that comes into force once the peak of the cycle is reached and short term, momentum glory turns into the uncontrollable slump.