Searching for the exit

This disparity between the rich and emerging worlds should be reflected in their macroeconomic policies. Emerging econo­mies can, and should, unwind their stimulus and raise interest rates before inflation takes off. But in big, weak, rich economies it is still too soon to tighten. The dangers of repeating the mis­takes made in America in 1937 and Japan in 1997 – when prema­ture tax increases and tighter monetary policy pushed fragile economies back into recession – are greater than the risks of in­action. With output so far below potential and credit growth stagnant, there is little chance of sustained inflation. Nor, in most countries, should fear of bondholders lead to sudden fis­cal austerity. The right lesson to draw from the travails of Greece, Spain and Portugal is not that all deficits today are dangerous, but that governments need to do more to control their deficits and boost economic growth in the medium term in or­der to make room for looseness today.

Most big, rich economies have absorbed half that message. At their gathering on February 6th, the G7's finance ministers concluded, rightly, that it was too early to begin withdrawing stimulus. But no rich country has laid out a credible, medium-term fiscal plan. Top of the list should be reforms, like raising the retirement age or means-testing future benefits, which im­prove countries' fiscal outlook without crimping demand to­day. France is leaning in the right direction, with its mooted overhaul of the pension system. America's new budget, which simply punted on the medium term, was a shocking failure in that regard.

Equally important is a more explicit agenda to boost growth in the medium term. To minimise the risk that they fall into a Japanese-style morass of high public debt and slow growth, the rich world’s economies must spur productivity, encourage investment and foster competition. That points to a renewed focus on freeing trade, cutting spending rather than raising taxes and agreeing on new financial regulations.

Some of today’s nervousness comes from “policy risk”. Nobody – neither firms, banks nor individuals – is quite sure where government policy is going. The more that government can do to reduce such uncertainty, the stronger the recovery is likely to be.

(“The Economist”, February 13^th 2010)

Exercise 7. Decide if the following statements are true (T) or false (F):

1. Big emerging economies are in the worst shape, with weak growth in domestic demand and scant spare capacity.

2. Though exports are recovering, Japan has slipped back into deflation.

3. This disparity between the rich and emerging worlds should be reflected in their microeconomic policies.

4. America's latest, buoyant, GDP figures are misleading.

5. The rich world’s economies must spur productivity, encourage investment and foster competition.

Exercise 8. Comprehension check. Answer the following questions:

1. What factors will determine whether fears of removing monetary and fiscal props are justified?

2. Is China’s economy considered to be vulnerable?

3. What should emerging countries do before inflation takes off?

4. Why is it too soon to tighten for big, weak, rich economies?

5. What did G7’s finance ministers conclude at their gathering on February 6^th?

6. How many countries have laid a credible medium-term fiscal plan?

7. What should the rich world’s countries do to minimise the risk that they fall into a morass of high public debt and slow growth?

8. Where does some of today’s nervousness come from?

Exercise 9. Study the report again (Exercise 6) and find the adequate English equivalents of the following words and phrases: 1) самостоятельный (независимый), 2) государственный долг, 3) потерять уверенность, 4) государства с большой задолженностью, 5) внутренний спрос, 6) недостаточные резервные мощности, 7) уязвимый, 8) ужесточение, 9) обманчивый (вводящий в заблуждение), 10) процентная ставка, 11) процентная ставка в годовом исчислении, 12) потребительские расходы, 13) уменьшать (подчинять), 14) мрачный, 15) слабеть (спотыкаться, запинаться), 16) несоответствие, 17) финансовая строгость, 18) неопределенность (слабость), 19) убирать стимулирующие меры, 20) план, заслуживающий доверия, 21) повышать пенсионный возраст, 22) искусственно повышать спрос, 23) пересмотр (модернизация), 24) повышать эффективность производства, 25) содействовать конкуренции.

Listening

Exercise 10. Listen to the report on supply chains in China and answer the following questions (“The Economist”, March 6^th 2010):

1. What report did Apple commission make public?

2. What violations were stated in Apple report?

3. Was it Apple free will or obligation to make their findings public?

4. Is Apple willing to make their entire supply chain public? Why?

Exercise 11. Listen to the report again and fill in the gaps in the script below using the phrases from the box.

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