EC 1 Rev 67.5

A country with big budget and trade deficits, a weakening currency, a spendthrift culture, a financial sector lacking the skills and systems to manage the risks it has assumed and a banking sector that consistently extended credit to parties unable to repay it goes into financial crisis. The rest of the world, which holds currency and securities from the afflicted state, watches and wonders whether these regional problems will bring down the global economy.
This is, of course, a description of America’s credit crunch and the international response to it. But it is not a million miles away from the emerging markets ills – think the “tequila crisis” or Russia’s 1998 default and devaluation – that threatened the world economy in years past. Around the world, that resemblance hasn’t gone unnoticed. For some, it has inspired a but-for-the-grace-of-God feeling you might call relief. As Guillermo Ortiz, governor of the Mexican Central Bank, said last week at Davos: “I’m glad that this time we did not cause it.”
Bolshier leaders such as the Russians couldn’t help but take some definite pleasure at this global turnround. Deputy prime minister Alexei Kudrin had fun pointing out that in the 1990s the US had led an investment charge into a weakened Russia, while today Moscow was among the oil-empowered states with the cash to bail out an imprudent Wall Street.
The emerging markets aren’t the only places with a geographically-shaped view of America’s downturn. Another split, apparent on the clubby, icy lanes of Davos and far beyond, is between the advocates of a healthy, purgative recession and those calling for aggressive fiscal and monetary action to soften America’s economic landing.
Most of the debate is about clashing economic philosophies and different diagnoses of the precise cause of the US’s current economic ills. It is also certainly true that both views have been robustly expressed by voices from both sides of the Atlantic. But the fact remains that much of the sharpest and most significant criticism of government intervention has come from outside the US: take European Central Bank boss Jean-Claude Trichet’s tough stance on interest rates. And you have to have a tin ear not to catch the non-American accent in the rhetoric and, maybe, in the ideas themselves