interesting news

It’s official - the euro zone is in recession. Not that it’s a surprise. The financial fallout there was arguably just as serious as in the United States and in the United Kingdom. Many other countries will experience their own downturns as American and European demand for their exports dries up. But who will recover first?

Despite all the hype about internal demand in emerging economies, I think the rich countries will recover first. Almost all of the major developing economies have the United States or a European powerhouse as one of their main trading partners. Even Brazil, which does lots of business with its neighbors and China, had the United States as its top export market in 2007. It’s true that some private investors, scared by the crisis, will shift their money away from the traditional powers into emerging economies. Overall, however, those economies need the United States and the European Union to start growing again. Those Chinese factories won’t reopen until they do.

Between the United States and the European Union (or the euro zone, if you prefer, though that group leaves out the United Kingdom), I think the United States is likely to be the leader. After some early faltering, it is now acting more aggressively than Europe to create liquidity in the credit markets. It may still suffer as housing values continue to fall, but so might Europe. Moreover, while American banks and corporations are rushing to clean up their balance sheets and get through layoffs, Europe’s byzantine corporate structures may harbor yet more dirty secrets. Europe sometimes has an advantage in government action, since the executive and legislative branches of government are united in a parliamentary system, but in two months the United States will have one-party leadership. And finally, though it’s not fashionable anymore to boast about the American economy’s dynamism, it has shown itself several times to be the most resilient of the world’s economic giants. Recession in the United States may be deeper than in Europe - indeed, the American economic cycle has been broader for decades - but it may be shorter, too. Source: Herald Tribune