In this issue:

Major French Initiative To Relaunch R&D in Europe

IMF Reviews 'Global Financial Stability'

World Economic News

Major French Initiative To Relaunch R&D in Europe

French Senator Pierre Lafitte and Deputy Pierre Lasbordes have begun a major initiative for the European Investment Bank to "borrow" 150 billion euros to relaunch R&D in Europe. The amount comprises 1.5% of the European GDPs. "Without a large-scale effort, the future of Europe will become somber. Outsourcing of research centers will continue, our brains will continue to expatriate themselves after having been trained here at great cost. In the end, Europe will be nothing more than a museum or an area of leisure." The 150 billion would be going to R&D in particular in the Eureka projects, but also to finance young creative entrepreneurs, and create the conditions where R&D and innovative companies throughout Europe can come together to form poles of excellence. Lafitte and the Foundation Sophia Antipolis—a center for advanced R&D and industrial applications based in Antibes, France—have launched this initiative to be carried out by an association they created called "Elite" (Enlarge Innovation and Talents in Europe).

Already Poland and Denmark have expressed their approval. French President Jacques Chirac and German Chancellor Gerhard Schroeder have noted their "interest." The EIB also stated that it is willing to go in that direction, but says it would need "state guarantees" before doing so. The initiative obviously has important backing from official circles. Members of Elite, who include elected officials, scientists, politicians and other influentials, will be meeting with the leaders of Eureka at The Hague on May 27. More than 2,000 influentials from the 25 European countries will be co-opted into this organization, whose aim is to inform the public at large of the important stakes in this fight.

IMF Reviews 'Global Financial Stability'

In its just-released semi-annual "Global Financial Stability" report, the International Monetary Fond claims that everything is just perfect right now, due to "solid global economic growth" and "buoyant financial markets." "At present, it is not easy to see which single event, short of a 'major devastating geopolitical incident or a terrorist attack' as highlighted in the September 2004 of the GFSR, could possibly trigger a sharp and abrupt reversal of this positive assessment."

However, in the case of a "combination or correlation of several less spectacular events," things could look quite different. Among the top risks is the financing of the U.S. current account deficit. "Any serious doubts about the willingness of central banks to accumulate dollars" could "trigger a further significant decline of the dollar and an increase in U.S. interest rates" which would hit the U.S. as well as the world economy. "Another possible source of concern could be a confluence of credit events, such as a downgrading of a major global company to subinvestment grade." At the London press conference featuring the report, IMF director Gerd Haeusler emphasized in this respect that corporate bond markets, following the recent GM-related turbulence, could easily further "deteriorate" in the near-term future. "If market conditions turn negative, many investors could rush to exit at the same time, causing market liquidity shortages that could amplify price movements." The report otherwise puts a special emphasis on the "recent proliferation of complex and leveraged financial instruments, including credit derivatives and structured products such as collateralized debt obligations" (CDOs).