Not out of the woods

The weather on the last day of the World Economic Forum was symbolic of the mood of the participants: Bright sunshine made the snow sparkle and melt slightly. For years, the meetings in Davos have been overshadowed by fear - because of the burst real estate bubble in the US, the financial crisis, the credit crunch, the debt crisis in Europe and, most recently, because of a possible breakup of the eurozone.

In contrast, this time there was mostly a sense of relief. But a good atmosphere can be just as self-perpetuating as a bad one, especially since all the participants in the forum in the small Swiss spa resort crossed paths every day. This is something Mark Carney, outgoing governor of Canada's central bank, observed. Carney, who is tipped to head the Bank of England this summer, said "I got here on Thursday midday and at that point the discussion was that the tail risks had been reduced. Sometime by last evening that became: tail risks have been eliminated."

No room for maneuver

Angel Gurria also found that too many good vibrations can be dangerous. ""What are we relieved about?" asked the head of the Organization for Economic Cooperation and Development (OECD), a think tank of more than 30 relatively rich countries. "We should be worried about the current scenario. The room for traditional tools has gone and we’re left with little else."

There is also no leeway left in fiscal policy, Gurria said, and all that remains is the hope that the reforms and rescue packages will also work. "It's not a pretty picture." As for fiscal and monetary stimulus, he said, "the room for traditional tools has gone and we’re left with little else."

For Carney, the situation is not quite so dramatic, and he said that central banks hadn't yet "maxed out" all of the means at their disposal. But he admitted that banking officials like himself could not cope with the crisis by themselves. "There is not an ability of central banks to take all these risks out or set the seeds for a sustainable recovery," he said.

Reason for concern

Christine Lagarde, head of the International Monetary Fund (IMF) also repeatedly warned in Davos against complacency: "Do not relax." The recent IMF Economic Outlook, which predicts a slight recession for Europe this year, showed how fragile the situation is, she said.

So no relief, ever more reforms? How ready to reform the Europeans still are remains to be seen in the next elections, in February in Italy and in the autumn in Germany.

Trevor Manuel, long-serving South African finance minister and now head of the National Planning Commission, warns Europeans against seeking their salvation in austerity alone. Too many of his former fellow finance ministers "look like deer caught in the headlights of a car," he said, criticizing their reliance on austerity. "It's not going to work."

If the rich countries in the North do not begin to spend money to boost their growth, they may end up worse off, Manuel said: "Deficits will go up without growth."

Stagnation here, growth there

Since 2007, the various regions of the world have developed very differently. Growth in industrialized countries has slowed markedly or stopped entirely. In the same period, emerging markets have risen 30 percent, and even 60 percent in China. The latest economic data from China also suggest that the slowdown in growth seen in the past is over, said Yi Gang, vice governor of China's central bank.

"After seven quarters of slowing growth, the economy headed up in the last quarter," Yi said, adding that it is now growing at an annual rate of 7.9 percent, with an inflation rate of just over 3 percent. He said the main growth driver is now domestic demand, "as people’s income continues to increase" - and not, as was previously the case, exports.

All in the same boat?

Nevertheless, China is dependent on developments in Europe and the US. Yi said China had strongly felt the slump in Europe. But Manuel advised against any attempt at "decoupling," in which individual regions try to detach themselves from the effects of economic developments elsewhere.

And although there is still a lot of potential in Africa to expand trade between the continent's countries, Manuel concludes that a European recovery is still Africa's best hope.