So what do recent developments suggest? In Europe, the second (or is it the third?) bailout in Greece should put the Greek issue to one side for the time being, although given that the current bailout projections for economic growth, privatisation proceeds and debt levels look like a triumph of hope over bitter experience, another bailout will surely be needed at some stage; either that or a Greek exit.
The good news is that we can cross that bridge when we come to it, and by then Italy, Ireland and the other peripherals may be out of the contagion risk zone and/or a sufficient firewall of eurozone and IMF money will have been constructed. This would allow Greece to leave the euro with no significant contagion risk, although my hunch is that, yet again, Germany would cough up.
US and China
In China, the government has cut its growth target from 8% to 7.5%; not a huge reduction and anyway the old target was usually exceeded by some margin. Yet it does signal that China’s growth going forward is unlikely to repeat the kind of rates seen in the nineties and most of the noughties. Still, it’s the mix of growth as well as the headline rate which matters, and China’s stellar growth of the past 20 years has relied heavily on trade and investment.
A slightly lower rate of growth, which is better balanced between domestic and external demand, need not be a bad thing.
As far as the US is concerned, most, if not quite all, of the recent economic data remains consistent with an improving picture, particularly in the labour market. The Presidential election is still some way off, although the Obama camp must be more confident that they will be going to the polls with a much better economic backdrop than they considered likely just a few months ago.
