<blockquote>'Rogoff went on to say that, should Germany wish to begin making inroads into its mountain of debt, there is no way around strict savings measures and significant tax increases. "It will be very, very painful," Rogoff said, adding that it will take at least a decade, and possibly many more, for Germany to pay down its debt.
He wasn't the only one in Davos with a dark vision of the future. Many countries could be stricken with the "Japan illness," Robert Shiller, a behavioral economist at Yale University, told SPIEGEL ONLINE. Following a financial crisis in the 1980s, Japan's economy remained in the doldrums for years as trust in the economy's ability to recover evaporated. Few were willing to take risks, sapping the Japanese economy of its life blood, said Shiller. "Such a situation could take hold in many regions of the world."
Such prognoses raise questions about the recent global economic recovery, modest though it may be. Is a second recession just around the corner, part two of what some warn could be a "double dip?" In the fourth quarter of 2009, the US economy grew by an impressive 5.7 percent -- but how durable are such gains?
'Historically Exceptional'One thing is clear: 2010 presents steep challenges to the world economy. "There is an illusion of normalcy," Rogoff warns. But that illusion, he points out, comes largely as a result of the immense amount of money pumped into the economy by governments around the world. The result -- massive public debt across the globe -- is "historically exceptional," Rogoff says. The only comparable situation can be found during the Great Depression, he points out.
The question now is when to shift priorities. When can one begin focusing on paying down public debt without immediately stifling the fragile recovery? And, of course, will taxpayers play along?
"In the US, for example, any politician who tries to significantly raise taxes would be gone immediately," Rogoff is convinced. "We haven't had to tighten our belts for 50 years." Shiller says he can already sense a widespread feeling of anger among his compatriots -- a degree of anger, he said, that hasn't been felt among the America populace since the Vietnam War.
The situation isn't much different in many other countries in the industrialized world.
- Anne Seith,
Economists in Davos Look with Concern to 2010, 02/01/2010