New Financial Crises looming over world economy

Global economy is in dire straits and it seems with every passing day that it is getting in and out of troubled waters. The dangers of new financial crises are raising heads once again. One of the main issues facing the global economy is an overall slowdown affecting everyone.

Financial Crises
On top of this is the over reliance of world economies on each other. Past two decades economic expansion has brought different economies closer to each other that is making them vulnerable now, because of the events not in their control.

The United States on its part of deeply caught up in its own economic woes, but it is also worried about the affect on its economy from Eurozone that is facing tough debt issues. US Secretary of State, Hillary Clinton showed deep concerns about the way Eurozone is dealing with its crises.

Christine Lagarde,the new IMF chief also noted that the world economy is entering a new phase and she said that policy makers lacked conviction to take this tough time head on. In other words, she said that the current policy makers who are worried about the immediate implications on their political standing and are reluctant to take tough decisions that need to be taken.

The epicentre of the immediate trouble is Eurozone;the group of European countries using Euro as a single currency. Four countries; Italy, Spain, Portugal and Greece in Eurozone are battling to avoid default on their debts.

The two main powers within Eurozone i.e. Germany and France are working hard to tackle this issue with the help of IMF, but their efforts are increasingly coming under pressure due to deepening crises.It is important to note that Italy is one of the largest economies of the world and any default by Italy could be a devastating blow to global economy.

United States on the other hand, is battling at home grounds and the efforts to balance the budget and reduce deficit is causing huge issues for Obama administration who has lost majority in Congress. US have been an advocate of bold actions in dealing with the crises right from the beginning.

It is clear that Obama administration is not in a strong position to dictate or force Eurozone leaders to take decisive actions, because of a weak domestic balance-of-powers system between the President and the Congress.

Internal partisan politics are the biggest obstacles in undermining Obama administration approach to financial crises. Republicans are intentin the Congress to paralyse the President’s initiatives. It will become even more difficult for Obama to tackle the issues because of the presidential election in 2012, as he will be focussed on re-election in coming days.

The domestic economic situation in America has directly affected China, which is facing a slowdown in its production and is not increasingly focussing on what we know as emerging economies. This solution might help sustain the economic growth to a level where the global economic situation might calm down and recovery process could begin to take a steady ground.

The global financial crisis is a litmus test for the now-shrinking world and the way it affects each other. What we need to understand now is that there has to be a radical change in our approach to this crises and resolving it. Therefore, the world needslong-termplanning and bold steps to avert renewed fears of crises.

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