Increasing signs of worry among the major economic powers of the world – particularly the Western world, about the future of the global economy must give pause to those of us who have little power to influence the developments which are the causes of their present discontents. Earlier this month US Secretary of State Hillary Clinton expressed concern at the dilatory manner in which the eurozone crisis was being handled. At the end of last month the new chief of the IMF, the former French Finance Minister Christine Lagarde observed that the world economy is “entering a new phase”, in the sense that “policymakers do not have the conviction to take decisions that are needed”. And her remarks have been followed up over the last weekend by a statement by British Prime Minister David Cameron that uncertainty in policymaking in the eurozone is having “a chilling effect” on the world economy, and that the “national interest” of Britain, as a country outside the eurozone while being a member of the European Union, “would not be served by the breakup of the eurozone”.
It has been well recognized in the EU that the task has fallen to Germany, the leading economy in the area, to take on extra responsibilities and commitments for finding a solution to the eurozone’s problems. This is so particularly in respect of making extra financial contributions to countries in deep debt, in particular Greece, but also as far as a deepening debt crisis in the larger Italian economy is concerned. But the German Chancellor Angela Merkel has taken a deliberately slow road to commitment of substantial funds to the foundering countries’ economies, first, because she is well aware of much reservation on the part of the German electorate as to whether the bulk of the burden should be placed on their country – reservation that is being strongly expressed in the opinion polls. And secondly because the German Constitutional Court which has a responsibility to adjudicating, at the request of the separate states of the Federal Republic, on the legality of German commitments, both institutional and financial, to the European Treaty. The German Chancellor has been playing a careful hand in this regard, especially since, on matters relating both to the implications of Germany’s adherence to the EU, and then on the legitimacy of financial contributions to other countries, the Court has handed down judgments that have given the government the benefit of the doubt, but only in a very limited manner that preserves states’ rights.
In that context, the Germans feel it necessary to insist that in return for their financial commitments to the beleaguered countries, and for what is almost a stretching of their country’s constitutional requirements, those countries, first Spain and Portugal and now Greece, implement extensive fiscal policies, and policies relating to the public sector employment and wages, that can bring both debt and public expenditure, and therefore government savings, under control relatively quickly.
The problem for the Germans has been that, as the Greek situation has been demonstrating, the possibilities of governments being overthrown in the face of widespread public protests bring a level of turbulence that can have two effects. First, a virtual paralysis of, in this case, the Greek government’s decision-making; and secondly a level of civic disorder that would force the Government to surrender power, leading either to general elections that would delay the implementation of the recovery plan, or to a prolonged period of negotiation towards the formation of a new government that would have the same effect. Those who are anxious to force a quick Greek government commitment use the example of Spain in arguing that while the Spanish socialist government did give up power, new elections have given a degree of authority to the newly-elected conservative government to implement the needed reforms.
At the same time, the EU leaders are aware of temptations on the part of certain Greek politicians to raise the spectre of a departure from the eurozone area, and the re-establishment of its old currency so that it can utilize devaluation as the traditional tool for restoring balance in the economy. For the leaders, however, this introduces the spectre of an unravelling of the euro, about which there is already much speculation among economists and financial commentators. With Italy now on the brink of appealing to the EU for assistance with its own debt crisis, there is concern too, about the effect of forcing the Greek situation in a context in which it is felt that Italy, with its much larger economy, may soon have to follow suit, with a consequent downfall of the Berlusconi government and a more extensive effect on the eurozone system itself while a new government is negotiated, or new elections are held.
In sum, in Europe at least, there is concern about too much political turbulence occurring in the eurozone system at the same time; and it is perhaps this that induced the leaders of the two major economic powers of the eurozone, Germany and France, to meet last weekend to, in effect, reassure the global system that they are ready to take some decisive actions to cope with the crisis.
While the United States itself has been encouraging the Germans, and the EU in general, to be bold in dealing first, with the Spanish debt crisis, and then with that of the Portuguese, there is obviously a sense that the traditional capability of the US government to twist the arms of its North Atlantic colleagues to take decisive action, has been weakened by what appears to be a paralysis of the American domestic balance-of-powers system between the Congress and the Presidency. First there is the American concern to focus on its own virtual economic crisis with its fears of a turn to a so-called double-dip recession situation. And secondly, there is what appears to be a determined effort of the Republican leadership in the Congress to paralyse the President’s initiatives in that forum, and so inhibit the implementation of policies designed to permit a resumption of economic growth. The President is increasingly bogged down, as the next presidential elections approach, in his efforts to force a resumption, so that the relative stagnation of employment can be staunched. Worse, from the President’s perspective, recent evidence has been suggesting that even though there may a resumption of employment, from the start of the recession of 2007, to the present, there has been a drop in personal income of those employed of 9.8%. And the President may well be fearing that in such a context pressure may increase on him to threaten trade protection against the Chinese Government, by a Congress which, willfully or not, refuses to recognize the changed nature of global economic relations as a consequence of China’s full integration what is now a world capitalist economy.
Naturally there is some anxiety about the outcome of the G 20 meeting scheduled for next month. That things have changed is indicated by a recent suggestion from the Brazilian Finance Minister, Guido Mantega, that the BRICS could assist the Eurozone countries in dealing with their financial problem; though other BRICS, in particular India, have thrown cold water on this. It appears that they feel that in spite of the integrated character of the global economic system, there is still space for Europe to solve its own domestic, in the sense of the collective eurozone, problems, without financial adjustment assistance from the newly emerging economies.