Olivier Blanchard, Jose Vinals and Carlo Cottarelli write:
The Long and Winding Road to Recovery by Olivier Blanchard, Jose Vinals and Carlo Cottarelli: The headline numbers do not look so bad. We expect global growth to be around 4.5% in 2011 and 2012, although the two-track recovery will continue, with advanced economies chugging along at around 2.5% annual GDP growth...
Huh? If--with large output gaps and still-live threats of deflation--growth barely below or barely above potential output in the industrial core is not "bad", then what would be "bad"?
Things get better once we get out of the lead, however:
Policy inertia is not an option. This is especially true in the advanced economies, where policymakers must address the issues more forcefully.... A more robust global financial system is urgently needed. There has been some progress on bank repair, but it is too slow.... The pace of recapitalization needs to be stepped up, and the new round of “stress tests” for European banks will mark a clear line in the sand.
Then it gets worse again:
Fiscal repair is also essential. A key priority for advanced economies is to continue the process of fiscal adjustment that most of them initiated this year. But the two largest advanced economies – the US and Japan – have not yet started along this path. They should put in place as soon as possible credible consolidation plans that are specific in terms of not only goals, but also the tools to achieve them.
The pace of fiscal consolidation should be set with a keen eye on growth and employment. Too slow will kill credibility, but too fast will kill growth. Thus, the tools used to carry out fiscal adjustment should boost economic efficiency, or at least not damage it...
If interest rates were rising, I would say that long-term fiscal repair is essential. But they are not. Long-term fiscal repair is only desirable. It is short-term expansion that is essential.
And the IMF is almost the only authoritative policy voice right now that is even semi reality-based...