Europe’s failings a warning in hubris for rising China
25 April 2010
It has often been said that China and other Asian emerging economies have had a good crisis. The delays and mutual recriminations that have dogged the European Union’s financial rescue of Greece can only have added to that impression in Asian capitals. On Friday, Greek Prime Minister George Papandreou bowed to the inevitable and formally requested the release of rescue money from the union and the International Monetary Fund.
Flaws in the decade-old monetary union were exposed last month when, despite their wealth, the 16 member states of the euro zone could not work out a viable rescue mechanism and had to ask for IMF intervention as the package – currently estimated at €45 billion (HK$465 billion) – was put together. Substantial as it is, this amount may only be enough to help Greece this year. Some experts estimate bailing the country out will cost much more.
None of this will be lost on Beijing. The trouble in Europe and the acrimonious efforts in Washington to reform the US financial system can only reinforce the self-confidence of China’s leaders. But there are lessons to be learned. At least since the fall of the Berlin Wall, Anglo-American free market capitalism and European monetary and political integration have been the twin models of Western democracy. And they have been in the ascendancy, posing an ideological challenge to the more authoritarian approach adopted in China and elsewhere in Asia. But the financial meltdown and its aftermath have, in the eyes of many, weakened their case.
The Greek debt crisis has highlighted problems at the heart of Europe’s monetary union. The world has realised the EU has no mechanism to rescue and discipline a wayward member state which has cooked its books, nor any means of ejecting it and allowing it to collapse. To do so would trigger a crisis potentially worse than that caused by the fall of Lehman Brothers and expose other financially weak member states such as Spain and Portugal.
European leaders have long understood that what gives their union worldwide appeal is their citizens’ peaceful way of life, high standards of living, extraordinary cultural heritage and prosperity. They hoped their “soft power” – which stands in contrast to America’s superpower status – would increase Europe’s influence. But what many Asian leaders see today is a Europe of declining growth rates and productivity, rising unemployment, ageing populations, and economies resistant to change and innovation and facing unsustainable welfare liabilities. And many European citizens question whether their countries should continue on the path towards integration at the expense of national interests. Germany, the anchor of the European Union, sees its sacred principles of sound money and European integration challenged by the profligacy of Greece, which contributes a tiny amount towards the EU’s GDP.
Even before the global economic crisis, developing countries, led by China, had questioned why European states enjoy disproportionate representation or influence at the IMF and World Bank, on the Security Council of the United Nations and, more recently, in the Group of 20 leading developed and developing countries. Now they have a stronger case. But if it appears that China’s state-led capitalism is gaining the upper hand, there is a need for caution rather than complacency. The financial crisis and Europe’s current problems have shown where hubris and excessive self-confidence can lead.