Davos 2013: New year, same old problems?

Delegates arrive at the congress hall at last year's World Economic Forum in the Swiss resort of Davos.

Story highlights

  • The world's political and business elite are gathering in Davos
  • 2,600 delegates will meet under the theme of "resilient dynamism"
  • The World Economic Forum's Global Risks report offers a pessimistic outlook
  • It says economic weakness is hampering the world's ability to solve problems

This month, the world's political and business elite will converge on Europe's highest-altitude town for the annual talk-shop that is the World Economic Forum, held this year under the banner of "resilient dynamism."

The theme, the conference's organizers make clear, is prescriptive rather than descriptive -- a clarion call to the world's leaders, rather than an endorsement of their responses to date in addressing the problems afflicting the global economy.

"The ... new reality that we face is a prolonged global economic malaise, particularly in major economies experiencing economic austerity," Klaus Schwab, the German economist who founded the World Economic Forum (WEF) in 1971, said in a statement.

"Future growth in this new context requires dynamism -- bold vision and even bolder action. Either attribute -- resilience or dynamism -- alone is insufficient."

While there has necessarily been plenty of resilience in evidence since the last time delegates gathered at the Swiss ski resort, their responses to major issues like the ongoing eurozone sovereign debt crises and the U.S.'s fiscal cliff could hardly be termed dynamic.

Those issues are likely to be foremost in the minds of those deemed important enough to be admitted entrance to the event, considered one of the world's most exclusive. Attendance to Davos is strictly by invitation only, with only 2,600 "white badges" of attendance issued to representatives from more than 100 countries.

Adding to the exclusivity is the hefty price tag to attend. While the white badges are free for invited representatives of certain groups -- heads of state, faith leaders, academics, social entrepreneurs, members of international organizations and news anchors -- for businesses, the cost of a ticket is approximately $20,000. Per-delegate costs can easily rise to double that once travel, accommodation and other expenses are factored in.

Among the VVIPs on the guest list will be heads of state, royalty, the CEOs of global corporate giants and the heads of a veritable alphabet soup of international organizations.

The delegates will have plenty to talk about. The WEF's own Global Risks 2013 report -- compiled from an annual survey of more than 1,000 experts and industry leaders -- offers a pessimistic outlook, saying the global community's ability to address significant challenges, such as global warming, is undermined by the continuing economic weakness plaguing major economies.

It identifies income inequality and unsustainable government debts as the two issues most likely to have an effect on the global community over the coming decade, and warns of a major systemic financial failure as the most devastating potential outcome.

That weakness in key economic zones is proving stubbornly difficult to remedy. In November, figures were released showing the eurozone has entered a double-dip recession, with the well-documented woes of Greece, Spain, Portugal, Ireland and Italy.

Austerity, the bitter medicine that it was hoped would be the cure to Europe's economic malaise, has not only proved hugely unpopular, prompting millions of Europeans to take to the streets in coordinated mass protests in November -- it is also, in the eyes of many economic experts, not working.

IMF managing director Christine Lagarde is among many leading figures who have called for a slowdown in the austerity measures, the impacts of which the organization's chief economist Olivier Blanchard has said were miscalculated.

The only major respite for the eurozone has come courtesy of the "Draghi effect." In September, European Central Bank (ECB) president, Mario Draghi, pledged to buy unlimited amounts of short-term debt from struggling eurozone members, in an attempt to shore up the 17-nation currency bloc, provided they accept certain conditions.

Nevertheless the pain remains severe in many parts of Europe, with Greece in particular enduring the agony of austerity and recession. Its economy is forecast to have contracted 6% in 2012.

Meanwhile the prospect of a government bailout continues to hang over Spain, according to market watchers. Compounding the uncertainty surrounding the eurozone's fourth-largest economy is an upcoming referendum, to be held in 2014, on whether Catalonia -- the country's wealthiest and most industrialized region, containing 16% of the population and producing 19% of its wealth -- wants independence.

Elsewhere in Europe, economists are predicting that Britain -- which is not a member of the eurozone -- will receive a downgrading of its AAA rating this year.

That was the result for the United States, as it suffered the first ever downgrade of its AAA rating last year. Despite lawmakers eventually reaching a deal on the fiscal cliff, political divisions look set to remain an impediment to addressing ongoing financial issues, such as the debt ceiling.

The U.S.'s borrowing has hit its legal limit of $16.394 trillion, prompting the Treasury to resort to "extraordinary measures" to ensure that the government can pay its bills.

If the ceiling is not raised soon, the U.S. faces the risk of defaulting on payments. But despite the painful, drawn-out experience of the fiscal cliff negotiations, indications from political leaders suggest that political partisanship and brinkmanship over financial solutions are set to continue.

And in the Arab world, the ramifications of a wave of upheaval that began two years ago is still playing out. Egypt -- the most populous Arab country, geopolitically significant for its relationship with Israel -- showed encouraging signs when it successfully held election for its first democratically elected leader.

But President Mohamed Morsy's assumption of special powers --a move described by critics as "dictatorial" -- to push through an Islamist-framed constitution outraged secular and liberal groups, among others, triggering fresh waves of protest from Egyptians disenchanted with how the revolution had played out.

The renewed unrest has scared investors, prompting a fresh round of selling of the Egyptian pound, which has hit a series of record lows.

His constitution passed, Morsy now faces an economic battle: to tackle his country's low foreign reserves, 12% unemployment and a large budget deficit, and revive this geopolitically significant North African economy.

The question here, as elsewhere, remains whether 2013 can truly represent a new dawn -- or whether delegates will return to their snowy enclave in Davos in 2014 to address the same set of intractable problems.

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