Yermakova: US government lives beyond means

The chief of the National Bank of Belarus forecasts that the US will have a default and the EU will face a second wave of crisis.

What can the world economy expect  in the nearest years and does another financial crisis threaten the planet?

Belarusian National Bank chief Nadzezhda Yermakova shared her views on the theme  in an interview for Narodnaya Gazeta.

“It's difficult to make any forecasts regarding the second wive of the global crisis. But it's possible to outline some issues of concern for the world community.

The number one problem for the world financial system is a possible debt default of the United States. It's not a secret that the American government stopped living  on its means long ago, but launching an austerity programme means cutting off allowances and privileges  that will inevitably lead to social tension in the country. The United States is not interested in even a 'technical default', because it would significantly damage the country's image and make prospects for getting new loans less possible.

Another global problem is the debt crisis in Europe and Greece's debts. In principle, methods of the European Central Bank to save EU countries differ little from approaches of the Federal Reserve System of the United States – they count on the printing machine and purchases of problematic countries' debts. That's why granting another tranche amid the current crisis in the EU is an opportunity to influence budget planning and reduce budget deficit of a concerned country. Of course, it will hardly change the situation. But the EU economy, which has not recovered from the 2008 crisis yet, is very weak now. The default can lead to catastrophic consequences, so it is unlikely to be announced. An aid fund for Greece was created to give it money waiting for better times.

A second wave of the crisis can speed up a decrease in assets prices in the financial sector. A number of Eastern European and Central Asian countries, which are dependent on money borrowed from European banks, are especially vulnerable. A reduction of income of western banks will in turn force them to sell their foreign subsidiaries and will have a negative impact on assets valuation.

Moreover, the euro crisis will make the European Central Bank carry out an incentive monetary policy  and keep interest rates on the lowest level possible to tackle recession. This will result in increasing exchange rates of national currencies and raise the risk of creating 'bubbles' on stock markets.

One should not forget that problems in Western countries may and will influence the balance of payments and state budget of the countries, which in a certain degree depend on raw materials exports and inflow of funds transfers. Governments and enterprises may find themselves unable to cover growing deficit budget in case of 'freezing' world financial markets. This will affect investors making them be more prudent.”

At the same time, Yermakova preferred to hush up problems in the Belarusian economy.