GDP

By Lenos Trigeorgis

EU politicians have been locked in myopic and often self-defeating policies regarding bailout of troubled eurozone countries. They have insisted, in principle correctly, that troubled countries bring their finances to a sustainable path. But the austerity measures used are killing the growth prospects of these countries and damaging their ability to repay the lenders. The less able-to-pay the borrowers become, the tougher the repayment terms imposed, leading to a vicious cycle of further deterioration.

An alternative would be to tie the coupon paid on rescue loans to the growth of the country’s economy. When the economy is in recession, the debt interest burden will be lower, helping the country to boost growth; when economic growth picks up, GDP-linked payments will be higher precisely when the country can afford it. Read more

By Eswar Prasad and Karim Foda

Despite a number of recent shocks, the global economic recovery is getting on to a firmer footing.

The latest update of the Brookings Institution-FT Tracking Indices for the Global Economic Recovery (TIGER) indicates that resurgent job growth and rising business and consumer confidence are solidifying the recoveries in many advanced economies. Emerging markets are still doing well but some of the shine is coming off these economies as they tighten policies to cope with inflationary pressures.

The Overall Growth Index for the G20 economies shows a slight uptick in recent months, led by a gradual rebound in real activity. After the initial post-recession surge, financial markets have pulled back a bit, at least in terms of growth in stock market indexes and valuations. One bright spot is the resurgent business and consumer confidence in both advanced and emerging economies. Read more