Prof. Dimitar M. Ivanov, macroeconomist: The crisis is already deeply affecting the global financial system

- Professor Ivanov, I know that this topic is very extensive, but could you tell us what is happening in the world of capital? In late 2007 and early 2008, you delivered a comprehensive answer to that question, predicting the economic crisis.
- The diagnosis is important because the world economic situation has been deteriorating. After the financial collapse in 2008, the world economy went through three stages. The first one encompassed a year and a half of a sharp decline, followed by a very fragile recovery as a result of the bank rescue measures and the financial incentive plans in 2009-2010. The second phase of graver and critical decline started at the end of 2010 and continued throughout the entire 2011, giving signs that it will deepen further. The third stage of the crisis, which started at the end of 2007-2008, affected mainly the banking system. Today, it is already a double crisis since it is deeply affecting the most developed and wealthiest economies and the global financial system itself. In fact, the volatility of markets is already chronic. The panic is mounting due to a lack of strong political solutions to the crisis. Its "epicenter" is the debt crisis. The US, the EU, as well as the developed countries and the IMF cannot handle the situation. In fact, America has been paralysed fiscally, while the entire EU is on the verge of a huge financial, social and political crisis.

The ECB Head described the crisis as a systematically recurring event, but we are also witnessing the discontent and the protests in the U.S., France, the UK and other European countries.

These tensions will increase. The global economic uncertainty, the deepening social inequality could not but prompt social and political instability. The entire 2011 was marked by mounting social and political conflicts and discontent, by mass protests around the world, even on Wall Street. It cannot be concealed that the "plagues" of the capitalist world have penetrated deeply and invaded people's lives everywhere. The losses incurred since 2008 are enourmous. Today, the world economy as a whole is more impoverished by over 12%, while the erosion of welfare of many developed and developing countries has exceeded 35%. Thus, the potential for outbreaks of enormous social unrest everywhere - from America to Asia, from Africa to Europe is not only growing, but I would say that it has reached the breaking point of "triggering" social impatience.

- Four years ago, you warned that this crisis would be different, would last for a long time and could be catastrophic for the global economy. Now, four years later, did we learn anything more about this crisis and how to cope with it?
- Yes, four years ago some people realised that the world economy will face great difficulties in the coming years. In fact, Paul Krugman and Nouriel Roubini, Joe Stiglitz, as well as Robert Schiller, Raguram Rajan, Dean Baker and others, including me, warned then that the crisis would be excessively long-lasting and extremely dire and would get a grip of the whole economic world. Actually, effective measures were taken, but valuable time was lost when the anti-crisis policies were discussed. Politicians could not decide between the additional incentive funding for banks and entire economies and the blind trust in the effectiveness of the policy of cost contraction. Of course, it finally became clear that if both the public and the private sector shrink simultaneously their expenses, this will not just eliminate the "bad investments", but also the entire economy. Therefore, I think that if the private sector is severely indebted, the state should "fire up" the engine of investments in order to drive forward the economic life.  Only economic growth can reduce indebtedness.

- It seems that the crisis has not affected countries such as China, Russia, Brazil, Turkey ...?
- South America, the Middle East and Russia benefited from the booming demand for raw materials. However, the situation there is also complicated since no increased demand could be observed from their major markets such as the USA and Europe. China growth is decreasing since Beijing tries to take control of the inflationary bubble in the real estate sector. Besides, its export driven growth also depends on the increase in the American and European demand. Should China's appetite for raw materials decline, then the economic growth of South America, Middle East and Russia will almost stop, which in turn would cause a slump in their demand for Chinese goods. Thus, the spiral of economic problems will expand.

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