The state of the world economy these days reminds me of the famous telegram from an Austrian general, responding to his German counterpart toward the end of World War One. The German described the situation in his sector of the Eastern front as “serious but not catastrophic”. In the Austrian sector, the reply came, “the situation is catastrophic but not serious”. In much of the world today the economic situation is verging on catastrophic, but “not serious” seems a perfect description of the political response.

Four years after the Lehman crisis, economic activity and employment in the OECD has not yet returned to its pre-crisis level. Unemployment is at postwar highs in every major European country apart from Germany and, while the US jobless rate is now a little below its postwar record, it has been stuck above 8 percent for longer than at any time since the Great Depression. And in Britain, the long-term loss of output assumed by the government's latest budget forecasts implies, according to Goldman Sachs calculations, that the six months of the post-Lehman crisis did greater permanent damage to the country's productive capacity than the Great Depression or World War Two.

Now consider the response. In the US, the four years since Lehman have been dominated by economic debates among politicians, media commentators and business leaders on issues that are almost totally irrelevant to unemployment and the pace of economic recovery: how to reduce long-term budget deficits and whether to tweak the top rate of income tax from 36 percent to 39.6 percent. In Britain, the biggest economic controversy this year has been the extension of value added tax to hot pies. Europe's response to the deepest economic depression in living memory -- and an even more alarming xenophobic nationalism that threatens the literal disintegration of the euro and the European Union --has been to debate the bureaucratic “modalities” of bank regulations, fiscal treaties and pension reforms in the next decade.

How to explain this insouciance in the face of the gravest threat to the Western world since the height of the Cold War? In the US and Britain the answer is straightforward, if unappealing: party politics. In Britain, the Conservative-Liberal coalition has managed to lay all the blame for the country's economic troubles on Labour's Gordon Brown, so far at least. Thus there has been very little public pressure on the Cameron government to change its economic policies, and no political advantage in doing so.

In the US, the Obama administration's efforts to revive the economy with public spending have been stifled by congressional Republicans, while Democrats have thwarted conservative ideas about using tax cuts to stimulate enterprise, investment and consumption. Business leaders and media opinion-formers have aggravated this political impasse by whipping up fears about budget deficits, despite the record-low yields set by the markets on US Treasury bonds.

The good news is that US politics created a self-stabilising feedback of sorts. If the US economy continues to deteriorate, the Republicans will probably win both the presidential and congressional elections and would then be free to pursue an aggressive tax-cutting policy modelled on Reaganomics. Big tax cuts would doubtless increase budget deficits, but they might well pull the US out of recession as they did in 1983. If, on the other hand, the US resumes tolerable levels of economic growth and employment creation, then a re-elected Obama administration would have a strong mandate to overcome or co-opt what would then be a chastened Republican opposition.

Now for the bad news, which comes, of course, from Europe. The euro zone, in contrast to the US and Britain, is paralysed not by cynical political calculations but by profound misunderstandings of economics and finance. European leaders do not seem to understand that the fiscal and banking unions they are relying on to save the euro can only work under a very specific political condition: Restrictions on national sovereignty over budgets and bank regulation (as demanded by Germany and resisted by France, Italy and Spain) have to be agreed on at the same time as mutual support for debts (as demanded by France, Italy and Spain, and resisted by Germany). Moreover, the banking and fiscal unions can only work if they are backed by a central bank commitment to buy government bonds and thereby maintain near-zero interest rates for a long period, as in the US and Britain.

Anatole Kaletsky is an award-winning journalist and financial economist who has written since 1976 for The Economist, the Financial Times and The Times of London before joining Reuters.

The Daily Star/Bangladesh/ 15th July 2012

Islami Bank Bangladesh Limited (IBBL) organised a day-long orientation programme for 160 newly-appointed assistant officers Tuesday at Mohammad Yunus Auditorium of Islami Bank Tower in Dhaka.

With Managing Director Mohammad Abdul Mannan in the chair the programme was also attended by Executive Committee Chairman of the bank Engineer Eskander Ali Khan, said a press release.

The programme was attended, among others, by Deputy Managing Directors Md Shamsul Haque, Md Habibur Rahman, Md Nurul Islam, Muhammad Abul Bashar and Syed Abdullah Mohammad Saleh.

Abdus Sadeque Bhuiyan, Executive Vice President and Head of Human Resources Division, delivered the welcome speech and Abu Taher Mohammad Saleh, Executive Vice President and Director General of Islami Bank Training and Research Academy thanked the audience.

The Daily Sun/Bangladesh/ 14th July 2012

WASHINGTON: The World Bank yesterday approved a controversial project to link the Ethiopian and Kenyan electricity grids, which has been criticized by lobby groups because of environmental and human rights concerns.

The World Bank board gave the roughly 1,000-kilometer (620-mile) transmission line the green light, saying it would reduce costs, promote renewable energy sources and improve cooperation in East Africa.

The line is part of a nearly $1.3 billion project to link energy-producing Ethiopia with Kenya—where as many as 80 percent of the population is without power.

The World Bank is stumping up a loan of around $684 million for the project.

On the eve of the World Bank decision, advocacy group Human Rights Watch urged the bank president Jim Yong Kim to hold fire.

“The World Bank needs to rigorously apply its social and environmental safeguards,” a letter to Kim stated.

“Human Rights Watch has very serious concerns that the World Bank has failed to do so as the project currently stands.”

HRW said the dam that will be the likely source of the power in Ethiopia—which is not funded by the bank—could cause serious environmental damage to Lake Turkana, a UNESCO world heritage site.

HRW said the dam project has also resulted in a swathe of “abusive involuntary resettlement” of local groups.

While the World Bank says that more than 5,000 people will be directly affected by the power project, it stresses the dam project is not directly linked and energy will come from a large number of existing and future power plants in Ethiopia.

Human Rights Watch has been vocal in its criticism of the Ethiopian government for its policy of “villagization,” which it claims has resulted in a wave of forced relocations.

The transmission project is part of a broader plan to link the electricity grids of Ethiopia, Kenya, Rwanda, Tanzania and Uganda, spurring growth and saving East African nations around $1 billion a year in energy costs.

The Daily Sun/Bangladesh/ 14th July 2012

NEW DELHI: The Asian Development Bank (ADB) yesterday lowered the growth forecast for India to 6.5 per cent for the current fiscal, from the earlier 7 per cent projection, on the back of subdued demand and high inflation.

“India’s economy is now expected to grow by 6.5 per cent in 2012, down from the previous forecast of 7 per cent. India’s outlook is clouded by a combination of high inflation and poor demand, both externally and internally,” the ADB said in its ‘Outlook Supplement’ report.

It said that the weakness in the economy was reflected in declining business confidence, slow credit growth and subdued sales of automobile sector.

“With persistently high inflation, monetary policy has little room to counter the slowdown in economic growth...high inflation and trade deficit make it difficult to ease monetary policy to stimulate demand,” ADB said.

The Reserve Bank is scheduled to announce its quarterly review of monetary policy on July 31.

Wholesale inflation was 7.55 per cent in May. At the retail level, the Consumer Price Index (CPI) inflation for the same month was 10.36 per cent.

The Manila-based multilateral lender has also lowered the India’s growth forecast for 2013 to 7.3 per cent, from the 7.5 per cent projection made in April.

ADB has cut its growth forecasts for developing Asia to 6.6 per cent for 2012 citing economic problems in the Eurozone and its impact on global demand. It had projected a 6.9 per cent growth for the region earlier.

It further said that the decline in growth forecast for developing Asia was mainly on account of lower growth in India and China.

Moreover, ADB added, the global economic worries were also getting reflected in the plunge in business investment, and there could be slowing of growth in the second half of 2012.

According to official projections, Indian economy is expected to grow at 7.6 per cent (0.25 per cent) in the current fiscal.

While the RBI left its key policy rates unchanged in its last policy review in June, European Central Bank and People’s Bank of China slashed their respective policy rate earlier this month to boost growth.

The ECB reduced its main interest rate to a record low of 0.75 per cent and its deposit rate to zero to help tackle the euro zone crisis. “Global economic growth remains sluggish, with rising concern that emerging economies are increasingly vulnerable to weak economic prospects in the United States and euro area,” ADB said, while reducing the growth outlook for industrialised economies to 1 per cent, from 1.1 per cent earlier.

The Daily Sun/Bangladesh/ 14th July 2012

JAYPURHAT: Rajshahi Krishi Unnayan Bank (RAKUB) has realised Taka 832.3 million as agriculture credit here during the 2011-12 fiscal, transcending the target of Taka 457 million.

The realisation rate is 185 per cent, according to the specialised bank.

Earlier, the RAKUB distributed Taka 827.4 million against the target of Taka 761.0 million during the period. The RAKUB realised Taka 393.8 million from 157 certificate cases and Taka 891 million from court cases.

The Daily Sun/Bangladesh/ 14th July 2012