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European Help

March 30, 2009

If the EU were to take a unified stance at the G20 summit, it could help shape a new world economic order, and also aid developing nations that are suffering from falling demand and failed institutions, experts say.

EU flag with a hand in the foreground
The EU is being called on to give a helping handImage: AP

Christa Randzio-Plath of the Association of German Development Non-Governmental Organizations (VENRO) doesn't hesitate when asked about what caused the current financial crisis. She points the finger at the unbridled activities of the banks.

"In Europe, we have regulations that say a cucumber can only be sold if it has a certain degree of curvature," she said at a recent forum held in Bonn to explore the effects of the current economic crisis on developing countries. "But we were able to market every conceivable financial product – derivatives especially -- without any kind of regulation at all."

Since the banking industry in many developing countries is structured differently, it first looked as if the crisis would pass them by without leaving too much damage. But now, it's becoming clear that the crisis is hitting developing nations much harder than industrial ones. Sebastian Paust, managing director of InWent (Capacity Building International, Germany), was until recently the deputy executive director of the Asian Development Bank (ADB) in Manila. He says that the massive decline in exports is the main reason that Asia is being so strongly affected by the crisis.

"Demand in the US and Europe has gone down considerably," Paust said. "But there's also been a pullback from direct investments in Asian countries, including portfolio investments in the securities markets there."

Immigrants struggle to keep jobs

Woman walks in front of a stock market index
Developing countries have been hit hard by the financial crisisImage: AP

A particular problem affecting developing countries is that many emigrants to wealthier nations have lost their jobs due to the crisis, meaning they're no longer able to send money back home. This turn of events is particularly noticeable in countries like the Philippines, said Paust.

"Many Filipinos work abroad, and typically, they transfer about $14 billion ($10.6 billion) back home," he said. "This is a very important economic and financial factor in the Philippines, and the same is true for other countries such as Pakistan."

Without the help of their relatives abroad, more and more people in developing countries are living in poverty. This is happening at a time when, in Asia especially, high economic growth rates over the last 10 to 15 years were finally starting to see some relief from poverty. Having reduced the number of people living in extreme poverty from 900 to 600 million, Asia was well on the way to becoming the first region to meet the United Nations' Millennium goals, agreed on in 2000. One of these goals is to halve the level of extreme poverty by 2015. But if industrial nations continue to reduce the amount of money they spend on development cooperation projects in the face of the crisis, then the Millennium goals will slip further out of reach.

Mistrust increasing in developing world

The question is, how do you tell developing nations that there's no money left to fight poverty when, at the same time, billions are being poured into rescue packages for banks? For Dirk Messner, director of the German Development Institute (DIE), conveying that message would only serve to strengthen skepticism developing countries have about Western economic concepts.

"The perception from the perspective of many non-industrialized nations is that they now have to deal with institutions that have failed in their core responsibilities. Take the International Monetary Fund as an example. It was meant to prevent such a macro-economic disparity from occurring by creating an early warning system. But it didn't work."

Woman walks past a store selling rice
Many Filipinos rely on money they receive from relatives working abroadImage: AP

Messner is one of many experts pleading for the billions being spent on rescuing international institutions to lead instead to a new economic order. In his view, too much money is being spent to conserve the existing structures. More important would be a transformation to a world economy that was focused on protecting the climate and natural resources, for example. In this respect, Messner says Europe could play an important role.

"Sixty percent of the international investment in development cooperation comes from Europe," he said. "We have to mobilize this potential. Europe is already a protagonist when it comes to climate policy. A lot of progress was made in the past decade. From a technological standpoint, we still have the lead."

Messner added that Europe also has a reputation for being an honest mediator in international cooperation.

"We've built up 50 years of capital in respect to the question of how you cooperate across borders," he said. "In the world of tomorrow, if we want to get to grips with the economic crisis, the climate crisis, the resources crisis, we'll need much more regional governance, in other words, regional cooperation and integration."

That's assuming however, that Europe finally begins to speak with one voice. Until now, Europe has not been especially skilled at presenting itself as a unified actor. In the run-up to the G20 summit, Europe has been much more concerned with amassing a large number of participants instead of working out common positions on the issues at hand.

Author: Zhan Danhong/dc

Editor: Trinity Hartman