“No man is an island entire of itself….And therefore never send to know for whom the bell tolls, It tolls for thee.” – John Donne

The seventeenth century poem that inspired Ernest Hemingway towards his seminal piece, stresses the inter-connectivity of human beings. Societies, political states do not thrive when isolated from one another. International cooperation is critical if we were to emerge unscathed from the crisis. 

The global imbalances are apparent, the prodigal west and the parsimonious east. The west needs to increase competitiveness of domestic labor. This is achieved either through currency devaluation or through wage cuts and austerity or a combination of both. Quantitative easing strives to achieve the first. But in a world where every central bank resorts to this measure or peg their currency to US Dollars, this measure fails. A reduction in real wages is well under a state’s control, albeit very unpopular and leads to national resentment. Despite measures for reduction in spending are being contrived, none of them are in practice. The deficits number in Spain came in 2% lower than the target that was revised down by 3%. The persistent increase in debt ceiling and the subsequent failure of the super-committee is an instance in point. 

The creditor countries should seek to modify the investment driven, currency-pegged export driven model to a consumption based society. The structural change is hard to inculcate post the austerity measures put in place by the IMF, post the currency crisis in late 1990s. 

On the topic of IMF, the recent $400 billion in IMF resources is misleading. 82.5% of this is contributed by the European block. The rest of the world is unwilling to bail out Europe, including US and Canada. Pictures of European officials with Champagne and caviar discussing austerity portray the disillusionment prevalent in Europe. The credibility and impartiality of the IMF, with a heavy European influence, are also under scrutiny. Social change in the west is also an integral part of the re-balancing that the world needs. International cooperation and understanding of the situation at hand is critical to address the problem. Process of addressing structural can do without obdurate public, venal bankers and depraved politicians. 

Research carried internally suggests that all of the global growth in the last decade was driven by credit growth. In a world faced with deleveraging and austerity, true technological advancements can alone fuel growth. The alternative case of competitive currency devaluations to increase nominal growth and inflate away debt can have dire consequences. Hopefully scientists, engineers and fundamental value generators will step up to the humanity’s call.