Europe must take its medicine
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China Daily, October 27, 2011
Many economists across the world are persuading BRICS (Brazil, Russia, India, China and South Africa) members, especially China, to help Europe overcome its debt crisis.
Some European Union experts say that "Europe is special" and, hence, it is rational to concentrate on the continent at the expense of emerging economies. Such a worldview was strongest in France and Germany, and led the two countries to expand the EU by including a host of countries in the union that shared little with them in history and culture except for being part of Europe.
Had France and Germany kept the entire world, instead of only Europe, in their focus, neither would be in the kind of trouble that they are in today. French and German banking institutions are in effect close to bankruptcy, because of their exposure to the debt and credit instruments of other European countries. There has been a collective round of meetings, but they have resulted only in words rather than actions.
The reality is that no democratic government, whether in Greece, Ireland, Italy, Spain or Portugal, can implement the severe cutbacks in social spending that economic conditions mandate. These countries are moving closer to a crisis with each passing week, at the end of which European public finances and financial institutions will be in a parlous condition.
Although the Europe-centric managing director of the International Monetary Fund, Christine Lagarde, would like economies in the Middle East, East Asia and elsewhere to invest their surpluses in European debt instruments, the fact is that such a policy would only transfer the risk from European to Asian entities. It would not cure the disease. And to cure the disease, a system of social security is required that economies in crisis can afford.
The surplus funds of certain East Asian economies represent the hard work of their people, and ought not to be lightly given away. In the case of the Middle East, for example, the surpluses represent the earnings from the sale of petroleum products.
These resources are finite, and the Middle East economies need to invest their surpluses in a way that would assure them of security even after petroleum ceases to be a major component of trade. They should not be used in efforts to prevent the inevitable, which is restructuring of the debts of some of the European countries.
The longer this essential medicine gets delayed, the more severe will be the pain of the rest of the world owing to the European crisis. Banks that have taken wrong investment decisions should face the consequences instead of being allowed to escape by letting other countries that have bought high-risk money instruments of French and German banks substitute their risk. People in emerging economies ought not to pay the price for the mistakes committed by European bankers and European policymakers.
The major economies of Europe need to accept that they were in error when they devised policies related specifically to their continent. They need to accept that only free trade across the world can rescue them from economic disaster.
Today, consumers in Europe have to pay higher prices for several products because of the invisible and open barriers that the EU has erected to keep out goods and services from Asia. While the EU constantly asks Asian countries to accord preferential treatment to its own goods and services, it does not believe in or practice reciprocity.
Trade can never be one-way traffic. The EU needs to be as open to Asia as Asia is to the EU, for this is the only way that consumers in Europe will benefit from the lower prices of Asian goods and services. This is especially important when Europeans are paying higher prices for clothes, pharmaceuticals and services because competition from Asia has been cut off through various methods.
The example of India shows such a policy. Rather, the EU should accept the universality of humanity and treat the world as a single unit.
Asia and Europe can ensure the prosperity of each other. But for that to happen, the various barriers to trade erected by the EU have to be demolished. Protectionist systems do no good to European countries' economies as a whole, although they may have boosted the profits of a few large companies. The harmful effects of a Europe-centric policy have become clear with the crisis in the eurozone. Such a crisis cannot be overcome by pouring the savings of billions of Asians into economies where people have been living in a way beyond their means.
The only way the crisis can be resolved is by creating a truly universal trading system that would ensure the right of every country to access global markets without continental barriers. Had France and Germany paid even half the attention they paid to Europe to emerging markets in the 1990s, they would not be facing such a crisis.
The road to recovery is not through the Europe-centric road. Instead, it is through a universal international economic order that does not discriminate in favor of - or against - any country or group of countries.
Europe must do away with the global caste system that some of its policymakers favor, and instead join hands with the rest of the world to recover its prospects.
Just as Asia needs to look beyond itself, Europe too should look beyond its borders rather than continue looking inward.
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