Gazelles and Turtles

The world is currently divided into two groups of countries: those that are off to a strong recovery, and others that lag behind and are signaling new problems. This division, in turn, reflects a process of portfolio rebalancing, which is reversing the international ranking of growth rates relative to those before the crisis.

MUNICH – The world’s worst post-war financial crisis is over. It arrived suddenly in 2008, and, after roughly 18 months, vanished almost as quickly as it had come. Bank rescue programs on the order of €5 trillion and Keynesian stimulus programs on the order of a further €1 trillion staved off collapse. After falling 0.6% in 2009, world GDP is expected to grow this year by 4.6%, and by 4.3% in 2011, according to International Monetary Fund forecasts – faster than average growth over the last three decades.

The European debt crisis, however, remains, and markets do not fully trust the current calm. The risk premia that financially distressed countries must pay remain high and signal continuing risk.

Greek interest rate premiums relative to Germany on ten-year government bonds stood at 8.6% on August 20th, which is even higher than at the end of April when Greece became practically insolvent and European Union-wide rescue measures were prepared. The spreads for Ireland and Portugal have also been rising, even though by the end of July it seemed that the gigantic €920 billion rescue package put together by the EU, the eurozone countries, the IMF, and the European Central Bank would calm the markets.

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