'Europe is bankrupt', says the governor of one leading central bank in the southern hemisphere, who I talked with at this year's World Bank/IMF Annual meeting here in Washington DC. The eurozone's crisis of confidence has alarmed the world's policy makers, most notably finance ministers and central bank officials responsible for steering their countries through the pitfalls of what is fast emerging as a double dip recession in euroland.
While Europe and the US are desparately seeking to avert a serious downturn in their economies, countries elsewhere in the world are concerned about their economies overheating. Economic growth is averaging over five per cent in Africa and so many companies and individuals want to invest in Argentina that the government has announced a limit on the amount of land foreigners can own in South America's third largest economy.
Europe's inability to resolve the euro crisis has exasperated the world's political and financial elite who are gathered here for their annual summit. Gao Xiqing, who heads the China Investment Corporation, resorted to lecturing the audience at one of yesterday's IMF panel discussions on how to run a capitalist economy. Given that George Soros was a fellow panel member, this was richly ironic. 'Culturally, you need to change your way of living and change your way of spending', observed Gao Xiqing. Since he is potentially one of the biggest investors in the proposed eurobonds to be issued by the European authorities, what he says carries a lot of weight.
Christine Lagarde, the newly appointed IMF Managing Director, is a class act. She told a press conference yesterday that the world's finance ministers were committed to tackling the crisis of confidence that has hit European economies and the euro. However, few in the room believed her protestations that European politicial leaders would implement the austerity measures necessary to bolster the euro. The majority of attendees reckon that things will get worse before they get better. Most agree with George Soros's prediction that Europe should refine a contingency plan for the possibility of a Greek default. 'It cannot be excluded' he warned; the implication being that we need to prepare for the possibility or indeed probability of default.