International

The first half of 2010 was plagued by fears of sovereign default. Global financial markets experienced increased volatility over the past six months as default fears shifted from financial institutions to sovereign governments, with Greece being the most prominent example. Several other countries, including Spain, Portugal, Ireland, and Italy have also faced increasing spreads on their debt, and the increased focus on government debt levels have led to tighter restrictions on government spending in the UK, and considerably more attention to the fiscal outlook for the US.

Survey respondents expect that the next 12 months will continue to be difficult for the “Club Med” countries. Over 90 percent of survey respondents anticipate that one or more of these countries will either be forced to restructure their debt or call on funding from the IMF or other Eurozone, with slightly more respondents expecting a debt restructuring. Despite this expectation, about 80 percent of respondents expect that the Eurozone will remain fully intact. Roughly 18 percent expect that one or more countries will leave the monetary union— either voluntarily or be forced to—but less than one percent of respondents expect that the euro will cease functioning as a common currency within the next 12 months. The majority of respondents agree that other Eurozone countries, the IMF, and the European Central Bank (ECB) played an appropriate role in providing funding to Greece through this crisis. The IMF received the highest marks, with almost 72 percent of respondents indicating that the international institution played an appropriate role. The ECB was also viewed favorably by nearly 69 percent of respondents.

Economists believe that austerity budgets can be successful, i.e., they can reduce deficits and debt fears without driving economies into recession. About 80 percent of respondents feel that austerity budgets will reduce deficits, while almost 70 percent believe that such budget discipline would be successful in calming sovereign debt fears. However, nearly 40 percent of respondents feel that such budget cuts would push economies into double-dip recessions. Only 11 percent fear that widespread austerity budgets would push the global economy into recession.

Economists participating in the survey generally feel positive about news that the Chinese government would allow the yuan to appreciate against the dollar. However, they were split on whether the appreciation would improve the US bilateral trade deficit with China. Still, about 70 percent of respondents think that the move would benefit the US economically, and 67 percent feel that it would benefit China, indicating that bringing the currency closer to market value is not a zero-sum game.

Summary | Monetary Policy | Fiscal Policy | State & Local | International |
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What will be the most likely outcome over the next 12 months with respect to these countries?

What will be the most likely outcome over the next 12 months with respect to the Eurozone?