As the leaders are suggesting various measures to 'kick start' the world economy, financial analysts and economic observers in Europe are apparently giving contradictory signals.
Last week, two international news agencies - London-based Reuters and Paris-based AFP from Brussels and Strasbourg respectively - in two dispatches conveyed that the idea of the European Union (EU) leaders are yet to reach a consensus.
Therefore, the debate among Europe's own major players and their open differences of opinion are creating more doubts in the mind of the people.
In this context, it has to be remembered that that both the politicians and the economists are putting pressures on their respective central banks to continue their unusually loose monetary policies to spur growth which in reality may provoke another market convulsion.
EU STRATEGIC FUND: The European Commission (EC) chief Jean-Claude Juncker who took over his new job on November 01 has unveiled a huge and controversial 315-billion euro investment plan at the European Parliament at Strasbourg, France.
The proposed European Fund for Strategic Investment must be approved by the leaders of the 28-nation EU at a summit in December, 2014.
What is the plan and how is it going to work? It actually suggests that the EU will set up a 21-billion euro ($26 billion) fund aiming at drawing about 15 times that amount in private investment.
The EC chief hoped that his proposal would boost desperately needed jobs and growth amid concerns that "Europe's failure to recover from the financial crisis is dragging the world economy down with it." "Europe needs a 'kickstart' and today the commission is providing the jump cable," he said.
Interestingly, Juncker's announcement came a day after Pope Francis addressed the same parliament and said that Europe had become an "elderly and haggard" grandmother. He urged it to reclaim global leadership. The EU, with a population of over 500 million people, is the world's largest economy.
It is, of course, not as simple as it looks. The catch, the AFP report said quoting some economists, is that this new fund contains no new money and only re-engineers existing funds. It has been calculated that the seed money would attract 15 times more investment from the region.
Juncker rejected this criticism outright and the AFP report quoted him as saying: "I often hear what we need so-called fresh money but what I believe we need is a fresh start and fresh investment….The money we are putting forward today comes on top of what already exists."
FRAGMENTED PARLIAMENTARY VIEW: However, the AFP report said that the fragmented view of the politicians on the plan was reflected by the European Parliament members.
Manfred Weber, a senior member of Juncker's own centre-right European People's Party, said though the plan was "convincing", he would call upon EU member states to make necessary reforms to their own economies.
Dimitrios Papadimooulis of the Greens argues that Juncker's plan was "not enough" and said: "It's a drop in the ocean. Your famous package is just business as usual, a Europe dominated by Germany and austerity."
Juncker's plan addresses the key problem for the European economy, namely a drastic lack of investment, which remains way off pre-crisis levels, in stark contrast to the United States. He said: "We need to send a message to the rest of the world - Europe is back in business."
In this connection what a Washington DC-based writer Landon Thomas Jr. commented during the International Monetary Fund's semi-annual meeting held in New York in early November should be remembered.
AFP quoted him as saying: "As global leaders sounded the alarm about a slowing world economy, a more immediate concern drew the attention of the policy makers (at the IMF meeting) about inflated asset price and increasing levels of debt overseas."
Former Vice-president of the European Central Bank (ECB) Lucas Papademos, who participated in the IMF's semi-annual meeting in New York, said: "A major lesson of the last crisis is that accommodative monetary policy contributed to the financial excesses.
We are pursuing a similar policy for good reason. But there are limits - if you do this for too long, risks in the financial markets will materialise."
EU, TOO, HURT BY WESTERN SANCTIONS: From Brussels, Reuters projected how the West-imposed sanctions against Russia have boomeranged and EU countries are facing a number of difficulties.
The European Union and the United States imposed economic sanctions on Russia in late July to punish Moscow for its support for the pro-Russian rebels in Ukraine.
The target was Russian energy, banking and defence sectors. The sanctions did hurt Moscow, but at the same time these were also impacting the European large companies when "Europe's weak economy can ill afford it," Reuters observed.
As the US and EU governments consider blacklisting more Ukrainian separatists and potentially more Russians and their companies over the Ukraine crisis, 'anecdotal evidence and new EU data show the economic costs for Europe of pressuring the Kremlin.'
According to EU's statistics office Eurostat, in August, the month after sanctions were imposed, EU exports to Russia dropped 19 per cent to 7.9 billion euro ($9.91 billion) as compared to July. Exports were also down 18 per cent compared to August 2013 at a time of the year traditionally busy for exporters.
Of course, the drop reflects the effect of Russian food ban imposed on the European Union in August responding to West's sanctions. But it seems to have gone well beyond that. Total EU exports fell 12 per cent in the first eight months of this year compared to a year ago.
In August, EU exports of machinery and transport equipment such as cars and tractors fell 23 per cent compared to July. Compared to a year ago, these exports fell 21 per cent.
Manufacturing exports fell 16 per cent across the 28-nation bloc in August. Germany, which accounts for one-third of sales to Russia, saw a sharp drop in sales of those goods, while Italy's manufactured exports tumbled by almost half.
So the present situation, compared to when the West had imposed sanctions against Russia, appears to be turning out vastly different. This volatility may move either way.
But this is likely to push the Western leaders and policy makers to the drawing board again to hammer out a new well-thought-out strategic move. It is difficult to predict how soon it may happen (or not at all) as there are many geopolitical strategies working at cross purposes.
CHINA'S TERMS OF TRADE WITH EU, RUSSIA: Ding Yifan of China's the Institute of World Development at the Development Research Centre of the State Council wrote in an opinion piece in the Global Times: "When some eurozone countries were disturbed by the sovereign debt crisis, it was China that acquired their bond to help stabilise their
markets.
However, in an aftermath of the crisis when these bonds appreciated dramatically, some Western investors even came to China in hope of buying back the bonds that they had tried hard to avoid. Didn't they know that things always change?"
Meanwhile, the Russian economy has been facing tremendous pressures because of fall in energy prices and intensified Western sanctions on Moscow.
Besides, accelerated pace of capital flight has led to the drop of rouble's value. Russia's fiscal revenue has also decreased substantially because of loss of oil
prices.
In this context, Ding Yifan pointed out that China's extensive investments in Russia has drawn much attention everywhere. China now holds Russian bonds and exchangeable monetary assets and also makes direct investments there.
Some observers suggest that as Russian economy is now in a harder position raising the risks of Chinese investments, if massive losses occur, it would affect the safety of the Chinese financial institutions and may even spark a systemic crisis.
To this Ding answers: "Should we worry about being implicated in the difficulties of Russian finance? International investment in particular involves special risks that result from political, price and contract default factors.
While it is necessary to watch these risks, more attention is needed on strategic interests . . . Russia is a strategic collaborative partner of China and naturally deserves China's help. In the international landscape, China is under a lot of pressure and needs to stabilise its strategic partner to share its burden . . . To this end, China's helping a strategic partner is somewhat helping itself."
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