1: The US has, despite periodic slowdowns, been an \"Cengine\"of growth for the

Question

1: The US has, despite periodic slowdowns, been an "Cengine"of growth for the global economy. In the late 1980s Japan looked like it could overtake US in that role but they fell back into a two-decade-long economic funk. In the last 1990s it looked like Europe (the EU) could become a global economic powerhouse, but they too have fallen back, Now it is China`s and perhaps India`s turn in the spotlight. Discuss the problems that affected Japan and the EU, and what they are trying to do about it. What problems may lie ahead for the latter countries?

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Explanation / Answer

As the EU's experience demonstrates, historical reconciliation is a critical element in developing the necessary political will for cooperation and, ultimately, integration. The fundamental basis for the success of the EU is the historical reconciliation between France and Germany, achieved by years of sustained political effort from the leaders of both countries. In stark contrast, there has been no such effort in many other parts of the word where there are ambitions of regional integration. In East Asia, for example, there can be no integration without genuine reconciliation between Japan and China, and Japan and Korea. The East Asia experience is replicated elsewhere with unresolved problems and deep suspicions between, for example, Brazil and Argentina, India and Pakistan, and Saudi Arabia and its neighbours. Only after historical reconciliation can countries proceed gradually along the various steps required to create a regional community such as a free trade area, a customs union, a single market, a single currency, a common passport area, and a common foreign policy.

The first challenge is increased fiscal coordination amid a worsening economic outlook. The EU needs to cleanse the financial system and follow through on austerity measures introduced by almost all member states. The situation in late summer 2010 is less critical than it appeared in the spring, when many doomsayers were predicting the collapse of the euro and even suggesting the EU might break up. The major risk today is the continuing fragility of the economies of some eurozone member states such as Greece, Spain, and Portugal, and the possibility of renewed speculation in the financial markets. Although there are some positive signs of economic recovery in Europe, many economists continue to warn of a possible "double dip" recession and the likely impact of the ongoing problems of many European banks. While most passed the "stress tests" at the end of July 2010, there was broad agreement that these tests were not as strenuous as they could have been.

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