The current wave of crisis will disrupt markets and moderate prospects for the US and EU, but there will be no going back to 2008, shares Montek Singh Ahluwalia, deputy chairman of the Planning Commission of the Republic of India.
There is a shift going on in the world in the direction of a multi-currency system, and this shift will be marked with the economic boom of developing countries, such as Brazil, China and India. They will definitely run ahead of traditional leading economies like Japan and the US. In the end, the shift of economic power is heading to Asia, believes Montek Singh Ahluwalia.
Emerging markets will group into a large number of relatively equal economic groupings. One center of power will not be able to exist in the new world, he believes.
Asked about the role of international monetary organizations, the economist acknowledged that no organization should be dominated by concerns of only one part of the world, “it should be seen reflecting global interests.”
Having one common currency in Europe is an ambitious step, and it is generally recognized it should be backed by a single fiscal authority – which it is not.
“To back a single currency they must have a very shared understanding of who is going to pay the bills if a problem arises,” Montek Singh Ahluwalia says, explaining that “there has been an assumption about lot of benefits to European countries from having a single currency, but not enough appreciation that there are costs.”
For now the bailouts are inevitable because a collapse is the last thing on everybody’s minds, but for the future the EU must elaborate some “very clear rules of behavior – how they are going to deal with fiscal crisis.”
As for the US and China, they are too interconnected to rival each other so both would be world powers, but America would eventually share its economic power with Beijing, saving its position as a great power and its dollar as a world reserve currency – but not the only reserve currency of the world, so the US is here to stay for at least another 10 years, believes Montek Singh Ahluwalia.
Anyway, the rise of the emerging economies will help to create a much more balanced system and the future of the world will not depend on the critical decision-making of a few economic powers.
The big message of the global economy is that the industrialized economies will grow more slowly than the emerging market countries, so international investors should be making their choices accordingly, concluded Montek Singh Ahluwalia.