That’s the comforting assessment of a member of the European Central Bank’s governing council. Having spent much of last fall and this spring following the credit crisis, and trying to picture the changes it could bring about, I find myself oddly unmotivated to write about it now that, in many ways, the worst case scenario is playing itself out. But just a few notes on some interesting developments:
- Could the Euro be the next casualty? Varying decisions on guaranteeing deposits in certain EU countries such as Ireland are already causing problems, and attempts to agree on a coordinated action fell apart last week. The euro hit its lowest level against the yen in three years yesterday. GM has ceased all manufacturing in the eurozone (admittedly, this may just be a face-saving way to save some money for the beleaguered automaker). This crisis, and the coming recession (already official in France) are big tests for an eight-year-old.
- Decoupling never existed. The stock markets of the BRIC countries are down by two-thirds, which hurts domestic companies trying to raise cash. At the same time, panicky (and undercapitalized) European and North American banks are withdrawing money from the region to bolster their own faltering balance sheets. We’ll now see how much of this unprecendented, fast-growing domestic demand can be maintained without investment from abroad or domestic equity markets.
- Canadians, with the exception of the Prime Minister, are slowly waking up to the fact that we are, after all, part of the rest of the world. Canadians’ reluctance to acknowledge this is due to a few factors, I think:
- a government that consistently spews a message of Canadian exceptionalism
- reflexive anti-Americanism that makes Canadians only too happy to blame every aspect of the current crisis on incomprehensible greed of individual Americans
- low levels of foreign news in Canadian newspapers and broadcasts that leave the average Canadian in the dark about the global nature of the credit crisis
The current meme of many, including the Prime Minister, is that Canada is doing everything right, and is just buffeted by the fierce winds blowing from elsewhere. To an extent, that’s true — we sell commodities that will be more or less demanded depending on the economic health of other nations. From another point of view, however, Canada has dropped the ball by allowing itself to become so heavily dependent on the commodities trade. Investment in infrastructure is years overdue, funding for research and new technology erratic and unfocused, and the current government left the manufacturing sector — which, contrary to many reports, is *not* an antiquated relic — out to dry by not taking any action to talk down the Canadian dollar when it could have. As a result, we have a less diversified economy than we should, which will make a commodities slump more painful for us than for most developed countries. The U.S. may be insolvent, but is has an extremely diversified economy, with many trading partners — one reason why the US dollar is still the landing spot for flights to safety, while the Canadian petrodollar looks increasingly risky.