A troubled farewell

BES: Dubai was a good a symbol of the credit boom. It was a property development that was sustained by cross-border financial speculators and some of the excess funds generated by a credit-inflated oil price. The emirate’s woes last week were a reminder that past financial excesses still weigh on the global economy. They helped bring the Breakingviews Economic Spot-check down from 2.8 to 2.6. That is still frustratingly below the Stability midpoint of the BES five-point scale, which runs from Lingering Recession to Off to the Races.

Dubai was not a lone indicator that the recovery is not well entrenched. Other weak points included Greece, US banks, German bank WestLB, farm equipment maker Deere and eurozone bank lending. Of course, there was good news too. A potential bid by US Hershey for larger British candy rival Cadbury is a sign that some parts of the capital markets have a bit of life. And a few companies are talking about strong sales and ambitious investments.

It is fitting to end the BES with these mixed results. Over its 30-week life, the series has monitored the economic and financial recovery. At the beginning of May, the good news was almost all in the markets, not the economy. The index struggled to rise above 2, Slower Decline. The BES moved up over the summer, but the debt overhang has proved too heavy for a clear economic take-off, despite ample support from fiscal and monetary authorities.

Growth will presumably prevail over debt sooner or later. If the world follows the example of Japan, which is still recovering from the credit bubble of the 1980s, the wait could be long indeed. The pattern of post-war US and European recessions suggests a much faster turnaround. Either way, Breakingviews will continue to monitor progress, although without the BES.