Celent Says

The Years Ahead

Nicolas Michellod
Insurance Experts' Forum, August 26, 2010

It’s been a while since my May 2009 post, titled: The Consequences of Printing Money. What has changed since end of May 2009? Let’s try to review the two main ingredients that are influencing our economy:

1. Government debts are increasing. Based in Switzerland—in the heart of Europe (geographically, I mean, since Switzerland is neither part of the European Union nor the Euro zone)——I was in the first row to follow the Greek crisis. The lack of fiscal discipline and the absence of economic growth in Greece have contributed to put pressure on the Euro zone, but eventually a new bail-out plan (at least a guarantee to launch one if needed) has been decided with the agreement of the German government. This test has demonstrated that the Euro currency system works well in good times, but represents a weakness for Euro zone countries when some of their members are in a difficult financial situation as it is the case now not only for Greece, but also for Spain, Portugal and some others.

2. Stimulus packages have still to prove they work. The U.S. counts on stimulus packages to boost its economy. Many policymakers thought the stimulus package decision following the 2008 financial crisis would help the U.S. economy to quickly return to growth, which it temporarily did, but it appears now that the overall economic situation in the U.S. is deteriorating again.

If we look at the industrialized world right now we can make the following statements:

•   European countries (at least the majority of them) and the U.S. have serious concerns with relation to their debt level. Some European countries have decided to cut public spending like the UK, Greece and Spain. So far, there is not a clear trend to implement massive tax increase.

•   The U.S. still continues its Quantitative Easing (QE) strategy. The Fed purchases the U.S. government debt contributing to printing more money. Right now it seems that the debt level is not a priority for the U.S. government.

This situation leads me to ask more important questions for the future: If there is no or very slow growth for a while, how will governments improve their financial situation without increasing taxes? If they increase taxes, will it contribute to kill any potential economic growth, which already is predicted to be anemic? Is it possible we’ll see a major government fail in the next five years?

Government bail-outs of financial institutions have not solved the problem, but have simply allowed them to gain more time. However, we should bear in mind that while governments can print money, they cannot print jobs. There might be a no-exit path here unless governments address the chronic deficit and debt problems and, together, agree to restructure the international monetary system.

This blog has been reprinted with permission from Celent.

Nicolas Michellod is a senior analyst in Celent's insurance practice, and can be reached at nmichellod@celent.com.

Readers are encouraged to respond to Nicolas using the “Add Your Comments” box below.

The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.

Comments (0)

Be the first to comment on this post using the section below.

Add Your Comments...

Already Registered?

If you have already registered to Insurance Networking News, please use the form below to login. When completed you will immeditely be directed to post a comment.

Forgot your password?

Not Registered?

You must be registered to post a comment. Click here to register.

Blog Archive

For Halloween: The Tricks to Get Innovation Treats

There are specific actions that can help prepare a corporate environment for magic.

Is the Long March to IFRS Convergence Over?

Once a given, the adoption of a single set of accounting standards for the insurance industry is on hold.

So You Plan to Buy a Core System … Now What?

There are many questions for carriers to consider even before the implementation process begins.

What It Takes to Have a Tech-Savvy Workplace

The tools and technologies to build the next workplace are available, but not common yet in corporate settings.

Avoiding the Bermuda Triangle of Data

Handled poorly, questions around data ownership, data quality and data security can sidetrack big data conversations and alienate business stakeholders.

A Prototype of the Successful Innovation Leader

Celent research reveals the prototype for the successful senior innovation leader.