Crisis over? Yes but it could return, global banking body warns

The world clawed its way off a financial precipice two years ago, but major nations still have to do some important work to put the global economy on a sound footing. If they don’t take steps such as controlling public debt, a new crisis is possible.

So says a report by the Bank for International Settlements, an organization backed by central banks like the Federal Reserve and European Central Bank.

"Addressing overindebtedness, private as well as public, is the key to building a solid foundation" for renewed economic growth, says the report, released Sunday. Otherwise, fiscal problems "could trigger the next crisis."

The report, by itself, doesn't signal anything new about future policies by central banks. But it amplifies many of the concerns they are wrestling with, and comes as the global economy faces significant challenges.

Economic growth has cooled in recent months in key nations including the US. Inflation has revived this year as a global worry, visible in food and oil prices. Governments in Europe are struggling to contain a crisis over whether Greece and other European Union members will be able to finance high public debt.

Related to those immediate trouble signs, in many nations private-sector banks remain under stress, and households carry their own high debt loads.

All this puts pressure on policymakers to navigate toward stable growth and avoid a possible new crisis.

"The consolidation of [government] fiscal accounts has barely started," said the report from the Switzerland-based Bank for International Settlements (BIS). "Highly accommodative monetary policies are fast becoming a threat to price stability." And financial reforms to safeguard the health of commercial banks "have yet to be completed and fully implemented."

Signs of progress and challenge

The report offers a window on signs of both progress and challenge for the global economy, as seen from the vantage point of a high-powered group of economists and financial regulators.

The good news is that the global economy is growing – raising the possibility of a transition from heavy stimulus efforts by policymakers to self-sustaining growth led by consumers and businesses.

But the report comes as a number of challenges have cropped up:

• The European Union has been roiled in recent weeks by efforts to persuade global investors that a credible plan is in place to provide support to Greece, in exchange for austerity measures to curb the nation's debt.

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