Monday, November 24, 2014

Emerging Markets’ Europe Problem

PARIS – From Hong Kong to São Paulo, and all points between, one word dominates all others among big investors: Greece. Will the Greeks remain in the eurozone? What will happen to the European Union and the global economy if they do not?

Until recently, Europe was a sort of mirror that confirmed for the major emerging economies the spectacular nature of their own success. They could contrast their high growth rates with Europe’s high levels of debt. They could oppose their “positive energy” with the pessimism dominating European minds. They were only too willing to advise Europe to work harder and spend less, as legitimate pride mingled with an understandable desire to settle historical scores and attenuate their legacies of colonial submission and humiliation.

But, today, emerging countries are growing very concerned with what they rightly perceive as the serious risks to their own economies implied by excessive weakness in Europe, which remains the world’s trade leader. Moreover, Europe’s malaise threatens many of these countries’ political stability as well, given the close connection – especially in China – between the legitimacy of existing arrangements and the continuation of rapid economic growth.

If the crisis in Europe were to cause annual GDP growth to fall below 7% in China, 5% in India, and 3% in Brazil, these countries’ most vulnerable citizens would be hardest hit. They were never part of the “culture of hope,” based largely on material success, that played a key role in these countries’ success. If social inequalities were to reach new heights, their frustration and resentment could manifest itself fully.

In that case, Europe could suddenly become a very different mirror for emerging countries, revealing, if not accentuating, their own structural weaknesses. And that is why, just as Europe must save the Greek economy or Spain’s banks at all costs, emerging countries must do whatever they can to contribute to the rescue of the European economy. As Europe has learned, the longer one waits, the higher the cost – and the lower the chance of success.

Unfortunately, a group of countries that are united above all by a common denial of their global responsibilities is unlikely to reach such a conclusion. Indeed, most emerging countries would balk at the idea of coming to Europe’s financial rescue for several reasons.

First, there is no such thing as a bloc of emerging countries. They are not united by a common vision of their future, or by a common political ideal, such as democracy in the Western world. Whatever the limits or contradictions of shared values, it would be naive to dismiss their importance. Europe and the United States will remain allies even if Barack Obama, like Nicolas Sarkozy in France, turns out to be a one-term president.

Second, emerging countries are more Europe’s rivals than its partners. They are united only by their shared suspicion of China. In such a context, a common long-term strategy is extremely difficult to conceive.

The Chinese may proclaim that they tend to think over a “longer” term than Americans, who think more “broadly,” and Europeans, who think more “deeply,” as a well-known Chinese international relations expert has put it. But, when it comes to the European financial crisis, China’s behavior seems to be determined by purely short-term tactical considerations, even as Chinese investments in Europe tripled in 2011. To buy half of the Piraeus harbor at a knockdown price may seem more advantageous than investing in the long-term consolidation of the Greek economy and its finances, but is that really the case?

Third, emerging countries’ short-term opportunism is based on a double distrust: towards Europe, of course, but also, paradoxically, towards themselves. That is, they lack confidence in their ability to do their part to save the sick man of the global economy that Europe has become.

To be sure, this runs counter to the triumphalism emanating from Asia, in particular. Kishore Mahbubani, a leading foreign-policy thinker from Singapore, recently proclaimed in Vienna, at a conference organized by my institute, that the next millennium would be Asian. And yet one senses among elites from emerging countries something akin to existential doubt, which the European crisis has served to reinforce. This insecurity manifests itself in many ways: from the accumulation of liquid wealth as insurance against foreign and domestic uncertainties to the choice of many, if not most, to educate their children abroad.

In fact, the sick man – undeniably European, if not Western – could reveal himself to be more resilient, owing to the strength of his own natural defenses: democracy and the rule of law. That is why the current European crisis may well prove to be a crucial test for emerging countries that are more dynamic than Europe economically, but ultimately more fragile politically.

Read more from our "Europe's Crisis Goes Global" Focal Point.

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    1. CommentedMoctar Aboubacar

      One question not posed here is the question of where we are going. Become partners with Europe, assess risks within Europe as threats to Emerging countries... but to what end? The current crisis is not business as usual, and the 'normal' toolkit does not seem to be the correct answer. So saying emerging markets are "denying global responsibility", or proning increased partnership with Europe means next to nothing as long as the author has not made clear the normative framework within which he is working.

    2. CommentedRodrigo Braz

      I believe that the common feeling, at least here in Brazil, is that it is a little ridiculous to ask poor countries, Brazil still has many families living in slums or in the arid northeast, to bail out rich economies.

      I mean, sure the crisis is bad, but we literally have people starving here. So to ask us to pay up so that greeks can retain their 14 salaries a year is seen as unrealistic.

    3. CommentedZsolt Hermann

      Unfortunately this article is full of the misunderstandings that has led to the crisis.
      First of all the "mirror" the "emerging market" countries should see in Europe is like a little child who looks into the mirror and sees himself as an 80 year old old man full of diseases, wrinkles, suffering, hardly alive close to death.
      What the child should understand from that picture that as long as he tries to live the same life, follow the same pattern he will end up the same weak, suffering, unhappy old man that he sees in the mirror today.
      There is no Greek problem, there is no European problem. We have system crisis. Whatever method humanity has applied so far through our history, based on our self centered, greedy, exploitative nature, especially in the last 100 years has lead us into this mess, the dead end.
      We simply cannot escape this system failure with the same mentality, methodology we entered it. If any country want to learn anything from Europe or the US, or any other developed nation is that whatever they did, whatever they are still doing is not right and we have to go the opposite direction. Instead of living inside ourselves, devouring everything only for our own pleasures, we have to "step out" and start sharing and making connections.
      Regarding "rivals" appearing later in the article, today there are no rivals, only in our minds following old polarized patterns. In a global integral world, where we are all interconnected in the same network there are only partners, like cells, organs in a single body. Or as a leading economist phrased it we are all on the same boat, that boat is sinking.
      If we want to keep the boat floating, whether we like it or not we have to work together, above all our differences, rejections, cultural characteristics, hatred, unless the boat is robust and is sailing safely we are all doomed.

    4. CommentedJ. C.

      I think the first and biggest mistake of this guy is to treat "Emerging Markets" as whole, from then on he lost my attention.... As if Brazil was the same than China or Venezuela or Haití... shows a great ignorance and xenofobia...

    5. CommentedFrank O'Callaghan

      It is important to see and state the root causes of the current 'crisis'. The world is more productive and wealthy than it has been in all of history. But there is a problem of distribution of wealth, power, work and resources. Inequality is the threat.