WORLD ECONOMY MAY SPLIT INTO RIVAL BLOCS, WARNS EUROPEAN CENTRAL BANK - EVEN AS RUSSIAN TYCOON QUESTIONS U.S. ABILITY TO REPAY ITS MASSIVE DEBT
Growing geopolitical tensions could accelerate the world economy’s deglobalization process, the implications of which could be far-reaching for all, European Central Bank (ECB) President Christine Lagarde warned on Friday.
Europe is now at a critical juncture, according to Lagarde, and faces a series of common challenges, including deglobalization, demographics, and decarbonization.
“There are increasing signs that the global economy is fragmenting into competing blocs,” Lagarde told the European Banking Congress.
Focusing on Europe, the ECB chief pointed to a continuous decline in the working-age population, which is set to begin as early as 2025.
“As new trade barriers appear, we will need to reassess supply chains and invest in new ones that are safer, more efficient, and closer to home. As our societies age, we will need to deploy new technologies so that we can produce greater output with fewer workers,” she said.
According to Lagarde, governments have the highest debt levels since World War II, and European recovery funding will end in 2026. “Banks will have a central role to play, but we cannot expect them to take on so much risk on their balance sheets,” she stated.
Lagarde’s warning follows earlier reports by the ECB on the global economy undergoing a period of “transformative change.” According to the ECB, a fragmented world would mean a more inflationary environment and financial uncertainty.
Russian tycoon questions US ability to pay debt
The US government is facing increasing challenges to even service the interest on the nation’s ballooning debt, Russian businessman Oleg Deripaska claimed on Friday.
Having hit another record high in mid-September, US debt stands at over $33 trillion. It spiked by $275 billion in a single day in October. According to the International Monetary Fund (IMF), US government debt is expected to increase from 123.3% of GDP in 2023 to 137.5% by 2028.
“Some officials in Washington, who apparently worked hard to come up with all sorts of sanctions, are now thinking about the high cost of (servicing) American debt, which is already more than $33 trillion. And they blame this on the not-so-transparent mechanism for placing and trading US bonds,” Deripaska, who has been sanctioned by the US, wrote on his Telegram channel.
The billionaire went on to point out that even if the transparency of the US Treasury market is improved fivefold, it is still unclear how the debt is going to be repaid.
He asked how Washington would pay the interest in two or three years, if it already has to pay off more than a trillion dollars annually. “This is the largest expenditure of the US government budget, which will be executed with a colossal 8% deficit this year and next,” wrote the founder of Rusal, the world’s second-largest aluminum company.
The growing US debt burden may guarantee a decline in interest among government officials in military spending, Deripaska concluded.
RT.COM
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