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About the Author

Andy Yee
Postgraduate Student (London, United Kingdom)

Andy Yee is a writer, blogger and translator based in Hong Kong. Educated at SOAS and Cambridge University, he has worked at the EU Delegation to China in Beijing. He writes at China Geeks, Open Democracy and Global Voices Online.

Post

The Greek Tragedy: Some Reflections on Africa and Asia

Published 19th May 2010 - 5 comments - 2381 views -

The Eurozone debt crisis, which originated in Greece, is now threatening the viability of the Euro and bringing fears of a domino effect of collapses across Europe and the globe. On 10 May, global policy makers install an emergency financial safety net worth 750 billion euros, including 250 billion euros from the International Monetary Fund (IMF).

This fall-out would look familiar to many African and Asian countries. During previous crises, the IMF proposed the notorious structural adjustment programmes for struggling African economies. In the 1997-98 Asian Financial Crisis, South Korea, Thailand and Indonesia needed to be rescued by the IMF.

As previous experiences illustrate, the way out for crisis-hit countries is to devalue their currencies, as Professor David Vines writes on the East Asia Forum:

The Asian financial crisis showed that the way for a country to recover from a financial crisis is to devalue its currency – to a very large extent– and then to go for export-led growth. We learned this from Thailand, Korea, Malaysia and Indonesia. What looked like a tragedy in the late 1990s now looks like a remarkable set of recoveries, in hindsight. Greece, within the European Monetary Union cannot do this.

As Professor Vines pointed out, Greece cannot devalue its currency easily because it is in the Euro Zone. This point is echoed in the African blogosphere, as Lova Rakotomalala from Global Voices helpfully translates a few representative comments. Le petit nègre notices that Europe was reluctant to ask the IMF to step in during the crisis because there is a strong resistance to devalue the Euro. But given the level of public deficits in many European countries beside Greece, the IMF would prescribe substantial devaluation for the Euro, as Lambert Mbela argues:

At least, let’s agree that the conditions are eerily similar: budget deficit, public debt, high unemployment, commercial balance in the red, bad management of public finances and top it all, tempered public data !! Seriously, if this was Mexico, Argentina or Burkina-Faso, the mighty IMF would have already prescribed competitive devaluation and structural adjustment to help the public finances.

The bailout from the EU and IMF will give Greece breathing space to put its public finance in order. While devaluation can lead to an export-led recovery is another matter though, as Greece, unlike Asian and African countries, lacks competitiveness in exports. But one thing for sure is that bankers and financiers who lent to Greece will get their money back, as David Vines highlights the lesson from the Asian crisis:

We learned from the Asia crisis that an IMF rescue is not a bailout. The huge loans from the IMF, approaching US$100 billion, meant that Korea, Thailand and Indonesia could repay Wall Street in 1997-98 when, all of a sudden, capital fled from Asia. But these loans were not gifts. In the end the IMF and other creditors were repaid by the crisis-affected countries and these countries then collected the money from their own taxpayers. The IMF simply made it possible to repay Wall Street bankers immediately, whilst the crisis-affected countries collected the money from their taxpayers gradually.

Finally, a fact not to be overlooked is that countries within the Euro zone, notably Germany and France, have a large say in the decision of the IMF. Hence, they have the luxury to ponder about whether to accept assistance from the IMF. This is not possible for southern countries, as Éric Toussaint explains:

Although the sub Saharan African region has 10 times the number of inhabitants of France, they have the same weight inside the IMF. The region has only two representatives on the IMF board of governors and they have to voice the opinion of 48 countries [..] One can imagine the difficulty of getting 48 countries heard when they only have 2 representatives.

But "social mobility" is possible within the global society. In the latest redistribution of voting rights in the World Bank, voting power of emerging economies has increased by 3.13%. China, the biggest winner, has seen its voting share increased by 1.64% (to 4.42%), and is now the third biggest voting power behind the US (15.85%) and Japan (6.84%). Meanwhile, sub-Saharan African countries have seen their already modest voting rights further curtailed.

Many say China is taking part in the new scramble for Africa's resources. But note that much of these resources are used to fuel China's manufacturing and converted into consumer goods for the rich countries of US and Europe. As Asia has successfully integrated into the US/Europe-led hegemony of globalisation, what lies ahead for Africa? A tripartite division of the world into top, middle and low nations is instructive. As Charles Kindleberger, a historical economist, points out a long time ago, the middle functions "to discipline the third member in forms of behaviour which he should adopt towards the first. The relations of the middle class to the wealthy and to the working classes may partake of this character."

Rather than alarmed at China’s inroads in Africa, we should be more surprised at the extent to which this has been tolerated by the West. Call it survival of the fittest or social Darwinism. Nations which do well in this structure of international political economy gain their rights to "discipline the third member", and self-control over decision making in times of crisis.



Comments

  • Hieke van der Vaart on 19th May 2010:

    Nice, round-up article, even for an economical nitwit (me).What do you think it means for other EU-economies? Would the Euro devaluate only if France or Germany went bankrupt?


  • Hussam Hussein on 19th May 2010:

    Thanks… possible future scenarios? Situation of EU Mediterranean countries?


  • Johan Knols on 20th May 2010:

    Hi Andy,

    Great post.
    What baffles me is the fact that when self-interest is imminent, the money presses will start rolling. Next time I hear that the Dutch government donates 10 million to a developing country I will just chuckle.


  • Andy Yee on 20th May 2010:

    Thank you for the comments.
    Germany and France are seen as the bedrock of the Euro, so if they are bankrupt it is the doomsday scenario.
    Logically some countries should leave the Euro so they could devalue and become competitive. But they would face a painful process of adjustments, also for political reasons and prestige, the politicians would fight to stay in the Euro.
    Paradoxically, this would leave Germany to pick up all the bills, it might as well want to leave the Euro…


  • Daniel Nylin Nilsson on 20th May 2010:

    Interesting smile If export-lead growth is the way ahead, the future looks grim for Greece I fear.

    I think that ultimately the debt is not the biggest issue. What Greece and other parts of southern Europe is now going through is a kind of internal devaluation, in clear speech lowered standards of living, and the political price the EU will ahve to pay for that will be vry high I think.


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