The news from Europe is not good. So serious has its sovereign debt crisis become, that at worst it threatens not only to bring down the Eurozone but also to make unviable the European integration process Hopefully this will not happen, and over the next week European leaders will be able to agree how to avert the danger that spreading economic contagion in Europe will trigger renewed financial turmoil in a weak global economy.
All of this may seem remote from the Caribbean but it is not. Europe remains a key trading partner, a source of investment, the origin of many of the region’s visitors, and is committed to provide development assistance and still offers preferential if now diminished arrangements for Caribbean commodities. Its economic decline has, therefore, serious implications for the region.
So serious has the crisis become that in the week past, France’s President, Nicolas Sarkozy, warned that the European Union itself could be at risk if its leaders fail to act to tackle its sovereign debt crisis at a crucial summit due to take place this weekend in Brussels.
In language verging on the alarming, President Sarkozy said: “Allowing the destruction of the euro is to take the risk of the destruction of Europe. Those who destroy Europe and the euro will bear responsibility for resurgence of conflict and division on our continent.”
Setting aside political hyperbole, the importance of what is being discussed over the coming week in Europe should not be underestimated.
In two meetings just a few days apart, European leaders are hoping to restore confidence by agreeing a further bailout for Greece; ordering Europe’s largest banks to raise more capital to ensure they remain solvent; and agreeing a €460 billion (US$634 billion) Eurozone rescue fund that is to be used to try to stop the crisis spreading to other EU states and their banks.
As this is being written it is far from clear whether these interlinked aspects of an agreement can be achieved. Officials are warning that the differences remain between Paris and Berlin, the two main players in the Eurozone, and that much of the detail still has to be agreed if a deal is to be achieved. In all of this there is a sense that ordinary Europeans are watching helplessly as their leaders, by trying to maintain the relative economic balance of economic power between states, have created a crisis with unpredictable global consequences.
So much so that increasing numbers of voters in electorates in nations mainly in Northern Europe that remain stable and economically successful are beginning to want their leaders to lessen their nation’s exposure to other EU member states, even to the point of restructuring Europe.
For most Europeans this latter course of action is still unthinkable, but there is a growing acceptance that the European integration model has to change.
This is because at the heart of the crisis is an unresolved contradiction of a system which assigns economic management and taxation to nation states, yet provides support and pursues ever closer economic integration and regulation at a supra-national level. The consequence is that Europe as an economic entity has little ability to ensure that its member states are economically viable, implement agreed policies or manage their indebtedness well.
At another level what the crisis is doing is highlighting the interest of the new economic powers such as China, Brazil, Russia, South Africa, India − the BRICS − and others in playing a much greater role in supporting recovery and by extension their strategic interest in the reordering of world power.
Two weeks ago the Group of Twenty (G20) industrialised nations met in Paris to consider the Eurozone crisis.
At the meeting Brazil, China and other newer participants in global economic governance suggested that they would contribute substantial funds to the International Monetary Fund (IMF) to enable it to calm negative market sentiment by demonstrating the body’s greater ability to support large European nations like Italy and Spain that may come under pressure as a result of a Greek default.
They did so after the IMF Managing Director, Christine Lagarde, warned that its US$390 billion of reserves may be too small if the global economy continues to deteriorate.
Despite this, reports suggest that finance ministers from the new world were told by those from the old world – the US, Japan, the UK, Canada, and Australia – that, over simplified, the IMF had sufficient funds and that the Eurozone could sort out its own problems.
What this seems to suggest is recognition by those who once controlled the world’s economy that their control of international institutions is in the process of change, and that agreeing to such an offer would bring them a step closer towards accepting a change in the world balance of economic power, with broader implications for other global institutions.
Next week there will be two summits in Europe at which EU leaders intend to arrive at what in the end may prove to be only a short term solution to more fundamental problems in the Eurozone.
After that the European Union will have to formulate its longer term stance in advance of the G20 summit in Cannes, France on November 3-4; the United Nations Climate Change Conference in Durban, South Africa scheduled from November 28 to December 9; and the WTO Ministerial meeting on December 15 in Geneva, that will in all but name accept that the multilateral round is at an end until the process can be recalibrated.
All of these meetings may end without clear resolution because the world order is still in flux.
Taken together the outcome of these events will indicate not just whether the markets and governments have been able to rebuild confidence, but how far it is possible for any new global agreement to be reached without better accommodating the interests of nations to which greater power is moving.
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