Al-Ahram Weekly Online   29 September - 5 October 2011
Issue No. 1066
Published in Cairo by AL-AHRAM established in 1875

Greek gambit

BRICS drive the global economy, and the wealthiest nations have a vested interest in impoverishing the poor, postulates Gamal Nkrumah

Managing Director of the International Monetary Fund Christine Lagarde has this week conceded that globalisation cuts both ways. Europe is struggling with a sovereign debt crisis and the eurozone might well be dubbed a disaster zone.

Emerging economies, in sharp contrast, hold the key to international economic salvation. The economic outlook has deteriorated markedly, but policymakers in the emerging markets of Brazil, Russia, India and China -- the BRICs -- know that their economies are in far better shape and that global economic recovery depends largely on their financial and economic intervention in the world stage. "The key message I wish to convey is that countries must act now -- and act boldly -- to steer their economies through this dangerous new phase of the recovery," Lagarde mused. "All this is happening when the scope for policy action is considerably narrower than when the crisis first erupted."

So has Western capitalism failed? Apparently, so. To be precise, it has failed the poor. "In other words, Europe under the European Central Bank President Jean-Claude Trichet is a return to the most extreme form of feudalism, in which a handful of rich are pampered at the expense of everyone else," wrote Paul Craig Roberts recently in Foreign Policy Journal.

Indeed, it is estimated that the G7 economies will grow by just 0.2 per cent in the last quarter of this year. This forecast points to the international anticipation of the emerging markets to propel the pace of global economic growth forward.

This week, the world's attention is focussed on the German-sponsored bailout packages for Greece. The eurozone debt crisis is spawning repercussions throughout the Western world. Greece, of course, is a microcosm for the calamity that has beset the entire European continent.

What then? "The idea that you need to boost growth by taking on ever greater debt is the wrong one," explained German Chancellor Angela Merkel. "We respect what Greece has done in terms of structural changes," she hastened to add. Merkel, however, has stuck to the traditional conservative notion of market economies. "We need to combine economic growth with solid public finances."

So what is to be done? And, how is the West to receive a helping hand from the BRICs? The answer to the first question is pretty simple. European bank shares rose sharply on the hope that the eurozone debt crisis can be contained as an outline of a rescue package for Greece and other larger eurozone economies such as Italy's and Spain's emerges. Well, that is hogwash.

As for the last question, the answer is more complex. "The recent financial crisis which erupted in developed countries underscored the urgency of reforming international financial institutions so as to reflect the growing role of developing countries in the world economy," reads a recent BRIC statement. Lagarde's predecessor Dominique Strauss-Kahn was trying to re-invent the IMF by promoting BRIC initiatives. It has outlived its traditional raison d'ĂȘtre and role in the global economy.

This raises two questions. First, is this why Strauss-Kahn was removed from office on trumped-up charges? And, was his coup de grace irreversible?

Southern European countries such as Greece, Italy, Portugal and Spain borrowed recklessly at low interest rates and as a result wages in those countries were artificially inflated during the boom years. Soon they became uncompetitive, and unemployment now stands at a staggering 20 per cent in Europe as a whole. The situation in northern Europe is relatively better. Lagarde praised Britain's deficit reduction plan. And, British policymakers were self-congratulatory. "It is the rock of stability on which our economy is built," British Chancellor George Osborne boasted.

Still, despite the tough talk on the relative prosperity of northern Europe, markets are jittery and the high income, stronger economies of Europe such as Britain and Germany face serious adjustment problems partly because of the predicaments of their southern counterparts.

According to the London-based Financial Times there is a "shrinking overlap between the economically sensible and the politically acceptable". That is the crux of the matter. "The Greek government has kept mum about how many bondholders actually signed up," the paper noted.

Greek Prime Minister George Papandreou delivered a poignant landmark speech to German businessmen and policymakers in Berlin on Tuesday. "Many Greeks feel that they have little left to give," Papandreou told his German hosts.

Papandreou noted that Greece welcomed an unprecedented 16.5 million visitors this year. The sale of state lotteries is on the cards. He disclosed that China, India, Korea and Brazil are re-developing Greece's ailing infrastructure including its international ports and airports.

Greece faced a reduction of five per cent in GDP in investments, Papandreou told his German hosts. He said that pensions and education have become more transparent and pay packages have shrunk. Papandreou also promised that Greece would secure a surplus in 2012.

Papandreou openly confessed that Greece used to fiddle the books to wriggle its way into the eurozone. As a result, Greece's debt stands at a staggering 180 per cent of its GDP. "We are not a poor country, we are a mismanaged country," Papandreou lamented. "We have recognised our failings."

Greece is building hotels but ironically its hotel staff and construction workers are on strike because they demand higher wages and better living conditions. Yet the Greek prime minister urged German investors to invest in Greece. "This is not an investment in past failures," Papandreou pleaded.

Little wonder that the BRICs take pride in their spending power and newly gained global economic clout.

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