The world economy is in grave danger -- this is the main message from this week's Economist magazine.  And there is nothing I heard during the first day of the 2012 edition of the Conference of Montreal to contradict this dire warning.

True, European Commissioner Michel Barnier reminded us of the unique and great ambition of the European project.  No other region has attempted such cooperation.  And in response to the crisis, a great reform agenda has been launched.  Others complimented the decisive package to address Spain's banking problems. 

We were also reassured by reports of widespread regulatory reforms to the US banking sector, as well as the sertious cooperation undertaken by the G20 group.

But the most interesting talk was in the corridors.  Something more radical is needed to save Greece and the other European bad boys -- and ultimately to save the euro.  The European Central Bank could buy up all the region's toxic debt.  A good dose of inflation would also help erode the debt.  Pushing down the value of the euro would also provide a filip to the old continent. 

As reflected in the French elections, everyone is tired of austerity -- all the moreso given that it does not work.  And Merkel is only making enemies at home and abroad, and she has elections coming up next year.

More fundamentally, a serious growth strategy is necessary, and Europe still has to correct the fundamental divergances in competitiveness.

Asian Development Bank President Kuroda made a sobering presentation on emerging Asia, which is also being hit by the weakening in Europe, and desperately needs to make its growth more "inclusive".

The US faces a massive "debt cliff" at the end of the year.  And if, as seems likely, President Obama gets re-elected, we could be in for a continuation of gridlock.  And over the medium term, the US and other advanced economies face a massive social security and health bill for their ageing populations.

In short, the world economy really is in grave danger, and there seems no simple way out. 

Reference:

"The global economy: Start the engines, Angela".  The Economist.  9 June 2012.

http://www.economist.com/node/21556577?scode=3d26b0b17065c2cf29c06c010184c684