Monday, 19 December 2011

2012: The End of the World

The year of 2012 is often depicted by Hollywood as the year the world ends. Many a film producer has depicted 2012 as the year in which there is the death of civilisation and total devastation and destruction across the globe. With the ‘dreaded’ year nearly upon us, the likelihood of simultaneous global earthquakes and tsunamis look improbable. However what is certain is that the year will see western nations struggle to unshackle themselves from immense amounts of debt, the potential disintegration of the euro and the global economy grinding to a halt. The prospects of the international economy in 2012 look bleak.

Despite various summits, no credible plan to save the euro has been produced by any of the European leaders. The survival of the single currency and market, as we know it, look increasingly unlikely going into the New Year. This view is one shared by ratings agency Fitch has recently stated that they believe that a comprehensive euro zone deal is now “beyond reach”. In fact even the ECB president, Mario Draghi, has breached the taboo of the potential reduction of the zone by warning that the potential breakup could have severe costs throughout Europe and consequently the world. The Organisation for Economic Co-operation and Development (OECD) has already warned of a recession in the euro zone in the first half of 2012, and downgraded its growth forecast for the year in zone from 0.3% to 0.2%.

The current path the majority of western nations have followed to reduce debt levels by implementing contractionary fiscal policies to result in growth is one that will only lead to low levels, if that, of growth. The prospect of a UK recession is looking very likely, according to the OECD. With unemployment hitting record highs and showing no signs of slowing, along with contractions in the manufacturing sector and the government admitting it will not hit its target of balancing the government's budget by the end of 2015. The French economy is also under pressure following fresh doubts over its ability to survive potential European defaults. With French banks such as BNP Paribus and Credit Agricole being downgraded due to their difficulties in borrowing money ,because of the amount of Greek debt they hold, the likelihood of the French holding on to its coveted triple A credit rating is looking increasingly improbable. Even India and China are both having difficulties with their growth rates, the former still struggling with inflation and the latter trying to revive decreasing exports.

Many economists have warned that the year of 2012 will be one of the most difficult and that no country is immune from increased global risks. The most pressing concern of a euro zone break up is one that is already being factored into many countries plans. With the Bank of England producing contingency plans in case of the zone imploding and the Germans, reportedly, have started to re-print Deutsche Marks in fear of the extinction of the euro. So even if 2012 doesn't bring rising waters, inhabitable lands and crushing winds, it could bring the earthquakes in the financial sector, droughts in the manufacturing sector and the downfall of Europe leading to devastation across the continent and the globe. The new year could bring the end of the financial world as we know it.

Author: Thomas Viegas

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