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To make things worse, the latest numbers out from the US, UK, Europe, Asia or Latam are not encouraging at all, and there is nothing in them to suggest that we are close to the bottom. Although, we expect the steps taken by various governments around the
world (in the form of stimulus packages and bail-outs) would help arrest the downturn in the economy; however, it is unclear how long that might take. And any nasty surprises down the road could deepen the crisis.

The road ahead

There is still a big question-mark over the sustainability of the banks and their business models. Further losses will put the banks and the governments' guaranteeing their toxic assets over the cliff, especially considering the fact that the assets of the some banks are considered too big to fail dwarfs the total GDP of some European economies.

There is a very strong possibility of a crisis in CEE (Central & Eastern Europe) spilling over to Europe and to the rest of world. The worst hit would be the European banks. They hold between 55-95% of the market share (depending on the country) in the region through their subsidiaries. It is estimated that banks have lent over US $ 1.6 trillion in CEE (Central & Eastern Europe). Based on estimates, the combined exposure of Austrian banks in the CEE area could be over 73% of Austria's GDP. Default on banks' books could push Austria over the cliff. Besides Austria, other European economies will be hit badly as well. The new program launched by the three developments - EIB (European Investment Bank), EBRD (European Bank for Reconstruction & Development) and World Bank - to lend upto Euro 25 billion to Eastern European banks will not be enough to save them. It will only be a drop in the ocean.

The health of the world economy is deteriorating. And there is no doubt that we are in the midst of a major global crisis of historic proportions not seen in generations. Even though we have all the major world economies doing their very best to fix the ailing economy, it's hard to tell if some would survive the crisis without an outside help. Failure of one country could spill over to others and seriously hamper the recovery process. We can never accurately predict the short-comings, so it makes sense to have a PLAN B (Back-up Plan). It's better to be safe then sorry. We should envisage that finding a sustainable fix may require major economies of the world to come together and deploy their combined resources and skills to help us overcome this crisis.

The question is - will the world come together?

The answer lies in history. There are precedents when the world has come together and combined its efforts and resources to solve major global crises. Do we need to give examples? Naah, I don't think so!

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Sanjeev Kumar is Chief Executive Officer of Delamore & Owl Group of Companies (Website: www.delamoregroup.com), Toronto, Ontario, Canada. He holds dual Master's Degrees - one in Business Administration and another in International Finance. He has been the recipient of the "Southeast Asia Young Achiever's Award" for Year 2002.
Article posted on March 14, 2009.