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Key Economic News to Watch This Week: May 21

Last week, investors witnessed a modern-day bank run in Greece when reports indicated Greek depositors pulled nearly $1 billion from local banks, while borrowing costs for Italy and Spain rose sharply fuelled by fears of the potential for a Greek euro exit and the deteriorating health of the respective banking systems. As EU inspectors head to Portugal on Monday and ahead of the EU Council meeting this Friday, the crisis in the eurozone is expected to hog headlines once again.

Italy Forced To Retract “Dog And Cat Tax” Proposal

A proposal to impose an additional tax on Italian pet-owners had to be scrapped by the government just hours after it was revealed to the public last Friday, after public outcry prompted parliamentarians to ditch a controversial tax plan that would have raised revenues for debt-strapped cities and towns.

Can Hollande Change the Balance of Power in Europe? : Zaki Laidi

With François Hollande’s defeat of Nicolas Sarkozy, Merkel has virtually no support left in the eurozone. As the world looks for signs that Europe’s new power duo can overcome political difference and work together to save the euro, almost all European governments are counting on Hollande to change the balance of power. Will he succeed?

Greece’s Euro Exit Would Be “Quite Messy” and “Extremely Expensive”: IMF

Head of the International Monetary Fund, Christine Lagarde, has warned that the consequences of Greece exiting the euro would be “extremely expensive and hard, and not just for Greece.” While the impact would be hard to predict, Lagarde said the IMF has to be “technically prepared for anything”.

As talks to form a coalition government collapsed in Greece, Lagarde revealed that the IMF has conducted a technical assessment of a possible Greek exit from the euro.

In an interview with a Dutch public television broadcast, she said:

Foreign Investors Forsaking India for More Promising Emerging Markets

Foreign investors are losing patience with India’s policy paralysis, corruption scandals and slow growth. According to a report by Reuters, India is experiencing an outflow of money as investors seek higher returns in more promising emerging markets such as Indonesia.

In the words of Jim O’Neill, chairman of Goldman Sachs Asset Management, India has turned out to be the “biggest disappointment” of the BRIC nations.

EU Agrees To Stricter Bank Rules

Members of the European Union have agreed on how to write new global rules for safer banking, after months of bitter clashes between Britain and the rest of the Union. The rules, based on standards set by Basel III, aim to increase financial stability by making banks better equipped to managed their risks and absorb shocks similar to those of the last few years.

China FDI Falls For the Sixth Consecutive Month

In the latest sign of trouble for the world’s second largest economy, foreign direct investment into China fell 0.7 percent in April – the longest stretch of decline since the start of the global financial crisis.

China’s Ministry of Commerce announced yesterday that April’s inbound investment dropped 0.7 percent from a year earlier to $8.4 billion, following a 6.1 percent decline in March. FDI fell 2.4 percent in the first four months, from a year earlier, to $37.9 billion while outbound direct investment grew by 72.8 percent to $23.2 billion.

Eurozone Narrowly Escapes Recession

On the back of strong export growth in Germany, the 17-nation eurozone currency bloc has managed to narrowly avoid recession in the first three months of the year.

The European Union statistics agency, Eurostat, announced today that growth in the eurozone was zero percent in the first quarter of 2012, helped by Germany’s better than expected economic performance.

Expanding at 0.5 percent for the same period, Germany helped the euro area avoid its second recession in three years, cementing hopes that Europe’s largest economy can underpin the eurozone.

China Wary of Australia-US Military Ties

China has voiced it concern over the growing military ties between Australia and the United States, with Chinese officials saying that “the time for Cold War alliances has long passed.” China is one of the largest trading partners for Australia, and exports more than a quarter of its products to China.

12 Predictions for the Chinese Economy: Michael Pettis

The future of the global economy remains shrouded in mystery. Whether the crises in the United States and the eurozone will improve remains to be seen. While the latest economic data from China largely points to a soft landing, until the Chinese economy rebalances, it will not emerge from its own domestic crisis. In fact, China will be the last major economy to emerge from the global crisis.