European Integration in a Global Economy
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European Integration in a Global Economy

CESEE and the Impact of China and Russia

Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald

The expert contributors focus on global imbalances and accompanying policy challenges, competitiveness and trade, the sustainability of current growth strategies, and banking and financial stability in the light of the global economic and financial crisis. They provide a multi-disciplinary assessment, combining the views of high-ranking central bankers, policymakers, commercial bankers and academics, and demonstrate that a broad view of European economic integration is crucial given that spillovers and contagion were major issues of the recent economic crisis.
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Chapter 4: China, East Asia and global rebalancing

Menzie D. Chinn


In 2010, policy makers around the world were confronted with a series of challenges that, while substantial, seemed relatively well defined. International organizations such as the IMF and the OECD highlighted the challenges of managing a two-speed recovery: emerging markets raced ahead, while the advanced economies plodded along. Global financial imbalances, particularly current account imbalances, were a worry, but there were some signs that both growth and rebalancing in the USA and China would prove durable. The prospects for sustained and global recovery seem much less definite at the time of writing. In the first half of 2011, most forecasters revised downward their estimates for growth in the USA and particularly in Europe, where recession is now more likely than not. Anxiety surrounding the durability of Chinese growth was rising toward the end of 2011. Against this backdrop, the resurgence in the US trade deficit combined with the reluctance of the Chinese to accelerate currency appreciation suggests that the challenges to sustaining both growth and rebalancing are much more profound than policy makers earlier thought. The failure in the USA to maintain (let alone increase) short-term fiscal and monetary stimulus – despite ample evidence of economic slack and little evidence of inflation or crowding out – and the difficulties euro area policy makers have encountered in forging a resolution to the debt crisis means that, if a global recovery with rebalancing is to be effected, it is incumbent upon policy makers in other countries to step into the breach. In my view, those measures include greater fiscal stimulus in the current account surplus countries and greater currency appreciation on the part of the East Asian economies. If one takes the European situation as one where policy makers have difficulty in doing anything more than muddling through the next few years, East Asia will be pivotal. In this respect, the fate of the world economy rests upon policy makers in China and East Asia to a greater extent than at any time in the past.

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