Emerging economies' euro crisis

Most of today's economic institutions, from money to banking, evolved over many years the unintended consequences of decisions by millions of individuals. By contrast, the eurozone stands out for being a deliberate creation.

The eurozone is a remarkable experiment, a genuine vanguard of global progress. As 2012 ends, it is in trouble, and every effort must be made to nurture and strengthen it.

By the second half of 2011, it was evident that emerging economies, which had weathered the financial crisis that began in 2008 moderately well, were taking on water as the eurozone crisis deepened. Growth slowed sharply in Brazil, India, China, and other countries.

Central banks acted as lenders of last resort, thereby averting a major crisis. In December 2011 and February 2012, the European Central Bank announced the long-term refinancing operation (LTRO), whereby European banks were lent around 1 trillion ($1.3 trillion) in two tranches. Then, in July, came ECB President Mario Draghi's famous assurance to do "whatever it takes" to save the euro. The United States Federal Reserve injected liquidity, as did other developed countries' central banks.

There was a collective sigh of relief, financial markets stabilized, and industrial-production rebounded. The question on everyone's mind now is whether this post-storm calm will last, allowing the global economy to pick up.

Nowhere does this question loom larger than in developing and emerging economies, which are outside the main theater of the crisis, but are more precariously positioned than the developed countries. Many had only recently begun to grow rapidly, and, with vast reservoirs of poor people, economic growth has a moral urgency that it does not have in rich countries.

So, will the global economy stage a sustained recovery? Examining the past as carefully as I can, and aware of the risks of augury, my answer has to be no. Until 2015, the outlook is gloomy for Europe and, by extension, for the emerging and developing economies. The injection of liquidity that occurred over the last year was the right policy. But it only bought time; it did not solve the problem. And time is running out.

Unfortunately, most people have an instinctive propensity to look away from approaching problems until they are very close. America's "fiscal cliff," for example, was long in coming, but we started scrambling to avoid it only recenntly. So we should take early stock of the fact that there is another problem coming our way, which may be called (to give it the resonance of a coming storm) Edward the "European Debt Wall and Repayment Deadline."