Author: The Economist

FOR anyone from the ex-communist world with a medium-term memory, the frantic efforts under way to save Greece (and the other wobbly southern members of the euro zone) are rather puzzling.

For a start, what is so bad about default and restructuring? In the 1990s Russia restructured $32 billion worth of Soviet debt into PRINs and IANs (both are now stored in the Museum of Financial Archaeology and may be viewed on application to the curator). In 1998 it defaulted on those debt instruments. People said Russia’s financial credibility would never recover. One banker said he would rather eat nuclear waste than invest in Russia again. But within a couple of years, Russia was flavour of the month.

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THERE is a whiff of exuberance around the world economy these days. Financial markets are buoyant, business confidence is rising and global growth seems increasingly robust. In its latest forecasts, released on April 21st, the IMF predicts that global output will grow by 4.2% this year on a purchasing-power basis, a full percentage point more than it foresaw six months ago. Other seers are even more optimistic, predicting growth of more than 4.5%—or close to the average pace of the boom years before the recession. The level of global output is now back to where it was before the downturn. And given the scale of the financial crisis, the recovery is surprisingly brisk. With global business investment accelerating and consumer spending strong, there is growing optimism that the recovery is becoming self-sustaining.

Some of this optimism is justified. Just as financial stress worsened the recession, so healthier financial markets are now reinforcing the recovery. Higher asset prices have propped up consumer spending and narrower corporate bond spreads have eased firms’ borrowing costs. Economic recovery, in turn, has helped ease financial pain. The IMF has reduced its estimate of banks’ total losses from the crisis by $500 billion, to $2.3 trillion, two-thirds of which has already been written off.

The trouble is that the good fortune has not been shared equally.

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THE renewable-fuel standard released in February by America’s Environmental Protection Agency (EPA) paints an ambitious picture of biofuels’ future. It wants the amount of the stuff used as transport fuel to climb from 13 billion gallons (49 billion litres) in 2010 to 36 billion gallons in 2022, requiring by far the largest part of that increase to come from various advanced biofuels, rather than ethanol made from corn (maize). But although the future looks exciting, the present is rather grim. The EPA has been forced to slash its 2010 mandate for the most widely touted of the non-corn biofuels, cellulosic ethanol, from 100m gallons to just 6.5m, less than a thousandth of the 11 billion gallons produced from corn in 2009.

The fact that corn-ethanol production has continued to grow, despite the failure of a number of firms in late 2008 and early 2009, points to the efficacy of the various protections and subsidies it enjoys (falling maize prices helped too), though it says nothing about their efficiency or wisdom. Ethanol, which is used mainly as an additive to petrol, is not a particularly good fuel: it offers only about two-thirds as much energy as petrol and can corrode pipelines and car engines. By 2014 or earlier, ethanol production is expected to reach 10% of America’s total fuel demand, and thus to hit a “blend wall”, since the EPA does not at present allow blends of more than 10% for mainstream use.

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