As the "naughties" finally come to a close, PSD blog will spend the next few days looking ahead to 2010. Giulio and Ryan have already taken the lead on the tech front. What's ahead for the global economy?
One economic development that is likely to be on everyone's minds is the risk of sovereign default by rich economies. Many bankers seem to think that Dubai's troubles are doomed to spread elsewhere. Gillian Tett explains:
The dramas around Greece and Dubai have been one “wake-up” call. Moreover, as Moody’s noted this week that “the context for sovereign risk assessment has changed dramatically since the beginning of the crisis in mid-2007” – and more “turbulence” is forecast in 2010, given that the fiscal positions of western countries are deteriorating very fast.
Governments have taken several rash measures in order to put thier economic houses in shape and restore fiscal credibility. Ireland has slashed it's budget by $4bn (including pay cuts for the prime minister and a "Bono tax" on Irish nationals living overseas), Iceland has introduced a 25.5% VAT (the highest in Europe), while Greece is looking to restore its credibility in bond markets by implementing, among other things, a 90% tax on banker bonuses (surely the highest in the universe).
Fiscal restraint, balanced budgets, expanding the tax base: sounds like the Washington Consensus is coming to the West! In order to avoid a sovereign default, developed economies might need to take a dose of the medicine they have been prescribing to the world's developing countries.
A fitting start to a decade that is sure to see the continued ascent of emerging markets.