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.