Grahame Lucas, head of Deutsche Welle's South Asia Department, comments on the ongoing euro crisis and talks about what could happen should Europe have to turn to the BRICS states for help.
Grahame Lucas, head of Deutsche Welle's South Asia Department
Who would have thought that one day this would happen? Brazil, Russia, India, China and South Africa, the so-called the BRICS states, are to meet to discuss possible measures to bail out Europe. Ironically, it was only a few years ago that Europeans looked down their noses at these countries, referring to them as the Second World or threshold countries. But times have changed.
What many Europeans have feared for years has now started happening. A lack of progress on political integration within the EU has made it impossible for eurozone countries to find a solution to the ongoing euro crisis. As each day passes, it becomes more and more probable that Europe will not be able to come to terms with the crisis and will have to depend on international help. So far this has not been forthcoming, as the failed G-7 meeting between the world's richest developed countries last week demonstrates.
It is clear that the BRICS states are very worried about recent developments in Europe as they, too, have a lot to lose. Their trade relations with Europe, especially Germany, are both dynamic and of growing importance. Should the euro continue to lose value, their exports would become more expensive and thus more difficult to sell. But that is not the only problem looming on the horizon. The BRICS states reacted to the US budget crisis by getting rid of dollars and stocking up their currency reserves with euros. So, if the euro continues to depreciate, they could lose billions. Furthermore, the EU could respond by imposing additional taxes on imports to protect its "domestic" market. It has already started; Just last Thursday, the EU slapped additional duties on Chinese tiles to prevent what it fears is price dumping at the expense of domestic manufacturers.
The question is really how the BRICS states, especially China, really could help Europe. China and Russia could buying up high-risk government bonds to help stabilize the eurozone. It might not be a very attractive option, and Europe would have to pay a price for this kind of help. China is not hiding the fact that it would rather invest in key European industries and import more high-tech products. But Europe is not interested in that option, as many European countries, especially Germany, would lose their technological (and thus competitive) advantage which guarantees that their products are in demand worldwide. And selling off their leading technology firms would not only have a major impact on the economy, it could also have consequences for European security policy.
Nonetheless, with each passing day of the euro crisis, a no from Brussels is becoming more and more difficult. China has already started to apply pressure and has begun making demands. The country's leaders know what they want: for the EU to recognize China as a "market economy". For Europe, however, China does not fulfill the criteria by any means. Giving Beijing the recognition it wants would open the door of the European market wide for Chinese manufacturers thus allowing cheap products from China to flood in.
There is a lot at stake for Europe. The clock is ticking. Can the old continent overcome the euro crisis on its own? Or will it be forced to take money from abroad? The new head of the International Monetary Fund, Christine Lagarde, has referred to possible help from the BRICS as an "interesting development" – an understatement, at best. Not only will the Europeans pay a high price should their politicians fail, it would also mean a watershed of historic proportions.
Author: Grahame Lucas / sb
Editor: Sarah Berning / Ana Lehmann