Clash of civilizations and the collapse of European credibility
by David Marsh in Singapore
Thu 3 Nov 2011
The clash of civilizations displayed by the disarray in the euro area is not just between stern Germany and profligate, go-it-alone Greece. The gulf shows up, too, in the stunned incomprehension among Asian monetary specialists and financial officials towards the shortcomings that have allowed the Europeans so completely to lose control of what was until a short time ago a prized project for continent-wide integration.
In a week of conversations with leading players in China, Malaysia and Singapore, I have heard an unprecedented litany of charges against the elite of European decision-making. Criticisms of “arrogance”, “incompetence” and “not getting it” have been mixed with near-incredulity that economic and monetary union (EMU) may be about to tumble into the yawning abyss between the problems facing the euro area and the firepower mustered to resolve them. “Matters will be worse before they get better,” says one authoritative figure.
Amid widespread international vexation over the hijacking of the G20 summit in Cannes by George Papandreou’s referendum call, one leading official sector economist says Europe faces a terrible choice.
Either the European Central Bank makes perhaps $1tn worth of purchases of weak country debt. Or EMU disintegrates into a German-led “core” and a freely-floating southern rim. The former course of action would be sufficient to calm the markets, but would send the Germans into a paroxysm of nerves about incipient hyper-inflation. The latter, the economist predicts, would drive Germany and other similar countries into economic depression as a result of stark currency appreciation.
Whether or not the referendum in Greece goes ahead, the time is approaching when Greece decides whether or not to stay in EMU. I have always said that any Greek departure would be decided not by the Germans but by a sovereign decision of the Greeks themselves. That day may now be not that far off.
Whatever happens, Europe’s credibility on the international stage has collapsed. Some doubt it can be revived. Asians scoff at Europe’s lack of resolve, coordination and stamina. All characteristics, they say, that Asia has put amply on display in the 15 years of recovery from its own financial crisis in 1997-98. One well-connected Chinese financier points out that, during the Asian crisis, Koreans sold gold to help the government. “And you - you go on strike!” He underlines that, even if Europe does get more finance from among the fast-growing economies, China is not expecting Europe dramatically to increase its higher value imports from China. “We export a lot of labour-intensive products, we get dollars in return, we buy euro bonds, and they decline. We’d be better of investing in developing countries’ infrastructure or buying high-tech European companies.”
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