Opinion: (Mohamed El-Erian, CEO of RIMCO, a global investment management firm): “The year 2012 is Europe’s moment of truth. If their dithering continues, European politicians will soon lose control of the continent’s economic and financial future. After all the excitement of 2011, it is also a make-or-break year for some Middle Eastern countries in the midst of tricky political transitions. Even the United States is being shaken out of its social slumber as concerns mount about income inequality and, more generally, the fairness of the ‘system.’
“In an attempt to shed light on the key issues in play, what follows is an attempt to identify four factors that could wreck the global economy in the next few years, and four factors that could propel it to greater stability and prosperity. Let’s hope our leaders choose wisely.
“European economic and financial fragmentation: As of today, the biggest risk for the global economy this year is the disorderly collapse of the eurozone. It would bring economic and financial activity to a standstill across the continent, cause widespread corporate bankruptcies and bank runs, and destroy millions of jobs. …A complete eurozone collapse would be both chaotic and an unmitigated disaster.
“Disruptions in the Middle East: The greater the instability in these two countries [Iran and Syria], the higher the risk of regional contamination and, accordingly, worrisome global repercussions. This could include surging oil prices, leading to an ugly global stagflation.
“Central bank exhaustion: Unconventional measures by central banks have, up to now, played a critical role in avoiding debt deflation and economic recessions in advanced economies. In the process, the banks have ballooned their balance sheets to previously unthinkable levels (from 20 percent of GDP for Britain and the United States to 30 percent for the European Central Bank).
“Social unrest: Enabled by social media technologies that facilitate broad-based coordination, the world has witnessed an astonishing outburst of grassroots social movements that are pressing for greater social justice… Having come together on the basis of legitimate grievances, these movements now face the challenge of pivoting from complaints about the past to helping to build a better future. The longer it takes the pivot, the higher the probability of frustration and of the protests turning violent — and governments reacting inappropriately.”
My Comment: Everything is correct except for the reason for the crisis and its only possible resolution that stems from its cause.