Another Year of Panic?

PARIS: Brazil's currency devaluation earlier this year, and its difficulties since in stabilizing the real as well as its stock market, have demonstrated the importance, if any new proof was needed, of financial markets and their volatile mood swings. There can no longer be any doubt that investor panic can provoke economic meltdown, as it did in Asia and Russia last year, still threatens to do in Brazil and across Latin America, and may yet stage an encore in Asia over worries about a devaluation in China and the spiral of competitive devaluations that could follow.

Now in its eighth year, the almost obscene economic growth in the United States could be used to illustrate the inverse proposition. On at least two occasions in 1998, bad news could have set off a crash in American stock prices and an economic recession. After all, the majority of observers (analysts, too) had concluded that Wall Street was overvalued, even before the onset of the Asian crisis. Stock prices did, of course, decrease as a result of the Asian panic and its financial ramifications, but America's stock markets have since then recouped all of their initial losses and even moved on to new record highs.

The impeachment trial in the US Senate of President Clinton and the political crisis that could have amplified both political and economic uncertainty, leading to another sharp fall in prices on Wall Street, also had absolutely no effect on Americans and how they spend and save their money. Investors and consumers did not lose their optimism. Nothing seems able to shake them. Could the American public's faith in Alan Greenspan, chairman of the Federal Reserve Board, America's central bank, be a satisfactory explanation? He's done a solid job, but I doubt that this can be the only cause of American buoyancy.

So what factors get economies going and keep them humming? In Europe, the advent of the Euro has certainly not invigorated economic growth, and does not look likely to do so anytime soon. The best news of the year is that, at long last, the Continent's consumers seem to be emerging from their long depression. In contrast to the United States, however, the boost in consumer demand has not become an engine of growth. Why not? Probably because the macroeconomic policies of Europe's governments were, and remain, overly cautious and have not dared provide the necessary kick-start.