EU Summit Plan: It's all greek to me!

People have big hopes from the EU Summit in Brussels. All attention is on how Greek crisis will be solved. People are bullish that some relief will come after the talks in Brussels. Also, this week countries like Belgium, Italy, and Spain are set to sell more debt securities. Will be interesting to see how markets react. This all sounds alright.
What is interesting to me is the mind-set of people involved.
Clearly, negotiations with creditors and availability of rescue funds buys more time and reduces the probability of the event (at least in the short term). However, it increases the potential negative consequences that might arise in light of a collapse.
What do you think? Mathematically, here is what it looks like:

(Probability of failure) X (Consequences of failure) = Failure Impact


EU leaders want to reduce the probability of failure at the cost of greater negative consequences. Doesn't look like a smart move to me.

World Economic Forum- Confidence in India fading?

Source: AIESEC

EconomicTimes has an interesting story on the business confidence among Indian CEOs changing. It reports two key observations:

1. According to PricewaterhouseCoopers' latest global CEO survey, India as dropped to fourth place, behind China, the United States and Brazil as the country that 1,258chief executives across the world feel is most important for their overall growth prospects.

2. Confidence among Indian CEOs about their own prospects in the next year is still at 55%, down from a staggering 88% last year according to PwC's global survey.

The first point comes to me as a surprise. Yes, China and United States will continue to be important for business. But between Brazil and India, I believe India has had a better growth story. The 2012 forecast for Brazil is to grow by about 2.5% compared to about 7% for India. Also, the Brazilean Real and the Indian rupee both witnessed in excess of 15% depreciation in the last 6 months. One of the things that could explain this new order of preference is the series of corruption scandals and demostrations in India during 2010-11. This clearly has sent a wrong signal to the investor community. This is not to say that there is no corruption in Brazil. Yes, there is corruption, but it may not be at the same level and so openly talked about.

The second point is also difficult to understand. Nothing much (expect for 1% of GDP rate) has been lost since last year around the same time. The inflation is at similar levels and the rupee ofcourse has depreciated significantly. This should come as good news, especially to exporters. Yes, the global outlook has turned more gloomy and this would have definitely made an impact on India's prospects as well. Actually, I would imagine that a significant percentage of people who didn't vote for India would be in Industries which are impacted more by global economy than the domestic economy.
Just a few thoughts...

Central Banks: Setting Expectations

I sometimes wonder whether Central Banks need to be really transparent in sharing their forecasts and policies in advance. One extreme example is ofcourse of US Fed's announcement of keeping the interest rates low till 2014 (BBC).
Why have long-term forecasts and policy announcements? I see two problems with that. First,anything that is announced by Fed influences people's perception about reality and expectation about future. By making a long-term announcement, the Banks can paint a picture that although might not be true, but since it influences the people so much, it becomes an end itself for people. They take the future as given and make changes to fit into that environment. This gives life to the picture. Who knows how 2014 will look like? Second, by making such long-term promises, the Banks fall into the trap of keeping them. If promises are broken, their credibility takes a hit.

So why announce interest rates for 2014? Its funny but true how Central Banks and similar credible institutions can influence the world economics so much. I would personally like to see short-term forecasts of no more than 1 year and policies of no more than six months in future.