Davos Wisdom: If You Are in a Hole, Stop Digging! – Liana Melchenko

Liana Melchenko guest blogging for the Forum. She is a member of the Global Agenda Council team and wrote her piece from the Annual Meeting in Davos.

Just as we thought that the world is steadily recovering from the major global financial system breakdown, another wave of challenges has overwhelmed the economy. Are we living through times of revival or survival of the global economy? This is one of the major concerns of the Annual Meeting participants this year. Lagging and ineffective policy responses and overspending have led to the build-up of even greater economic imbalances than before. Protectionism, currency volatility, declining growth rates – all these are the unavoidable “hang-over” effects of overspending and bail-outs. These and other concerns are at the top of the minds of global leaders, gathered in Davos these days. 

Emerging markets continue to grow, although the risk of their choking on their success remains. As economic growth in advanced economies stagnates, the volume of trade among emerging markets is increasing significantly. This trend presents new opportunities, but it is also a risk to watch in the coming years.

While concerns around slow global growth in the long run remain, countries have to deal with immediate economic threats, such as European sovereign debt crises. Surprisingly, we seem to be forgetting the first rule of problem-solving – if you are in a hole, stop digging! Yet many countries continue to debate the timeliness and feasibility of implementing fiscal austerity measures. As one participant brilliantly put it the other day, “You cannot lose weight without dieting.”

Probably one of the most apparent feelings in Davos these days is the sense of urgency in dealing with economic problems. In times of economic uncertainty,one thing is certain – rapid response to crises. If we want to stabilize global imbalances, now is the perfect opportunity to do it. Currency imbalances and fiscal consolidation are high on the agenda of the G20. But is the G20 mechanism capable of pushing for radical and candid solutions? That is yet to be seen.

Liana Melchenko live from Davos