Washington – Headlines this week have been saturated with protests against unaffordable food, unfair taxes and unsustainable austerity measures, with one distinct difference setting these stories apart from countless others in recent history.
The people demanding reform are no longer marginalised Asians, Africans and Latin Americans, but poor, working class Europeans.
As citizens of Western Europe – particularly in Portugal, Italy, Greece and Spain, or PIGS – flood the streets of their once-stable countries demanding an end to cuts in public education, health care, youth programmes and housing subsidies, the big question at the annual fall convergence of the Bretton Woods Institutions is, “Who will solve the impending crisis in Europe?” Rana Foroohar wrote in Time Magazine last month, “While the crisis appears to be Europe's problem, if it results in a break-up of the euro zone or a growth-dampening series of costly bailouts, it will reverberate from Beijing to Boston and back.”
“Europe is the largest trading partner of… China. If they stop buying our stuff, everyone suffers. Meanwhile, a dissolution of the union would make nations from Asia to Latin America that hold the Euro as a reserve currency much weaker,” she added.
Small wonder then the world's leading emerging markets– Brazil, Russia, India, China and South Africa, or BRICS – took centre-stage at the World Bank/International Monetary Fund meetings in Washington this week, discussing everything from possible investment in troubled euro zone sovereign bonds to domestic job creation.
The BRICS possess a combined 4.3 trillion dollars in hard cash reserves, with China holding three-quarters of the kitty, much of it in Euros.
Following the “Lehman Crash” and ensuing financial crisis in 2008, the BRIC countries experienced the fastest rebound, with India and Latin America springing back to life with surprising resilience to the shock waves.
The result has been a shifting of the power relations within the economic arena increasingly towards emerging economies, which will likely account for 60 percent of global economic growth by 2014.
A communiqué issued following a meeting of BRICS finance ministers and central bank governors Thursday expressed a stern warning to the developed world to “adopt responsible macroeconomic and financial policies, avoid creating excessive global liquidity and undertake structural reforms to lift growth”.
Given the fact that nearly every euro zone country has flouted the three-percent annual budget deficit limit and the 60-percent debt-to- GDP ratio, the BRICS's concern appears to be well founded.
“The BRICS are open to consider, if necessary, providing support through the IMF or other IFI (international financial institution) in order to address the present challenges to global financial stability, depending on individual country circumstances,” the communiqué stated, though it steered clear of hard numbers or blueprints for such actions.
“What everyone has to realise is that we, as a cluster of nations, face an enormous demand for resources at home, particularly in the realm of (poverty reduction),” D. Subbarao, governor of India's Reserve Bank, told the press on Thursday.
“This causes an incredible amount of tension between allocating money to multilateral institutions for the sake of global stability and meeting stability at home,” he added.
In fact, the Bank's release Wednesday of a report calling for more and better jobs in South Asia predicted that the region, home to half a billion poor people, will have to generate 1.2 million jobs every month over the next 20 years, equivalent to about 40 percent of the increase in the global labour force, in order to ward off extreme poverty and unemployment.
“Most of us are democracies, so we are constrained by democratic processes of when and how much is given to the (global pool) of monetary reserves,” Subbarao added at the press conference, a likely reference to China as one of the only economic players capable of acting outside of the will of the majority of its people.
Numerous economists have echoed this view, tempering the media speculation that the BRICS will “save the day”.
“When people talk about the BRICS, they really mean China, and to a lesser extent India and Brazil,” Omar Dahi, professor of development economics at Hampshire College, told IPS.
“However, while (these countries) have the clout to be heard on international policy as well as to refuse the impositions of the Quad (the United States, the European Union, Canada and Japan), they do not yet have the ability to reshape international economic policy and certainly not to pull Europe or the U.S. out of its slump.”
“The BRICS are not thinking or speaking in unison,” Susan Schadler, a visiting fellow at the Centre for International Governance Innovation (CIGI) and former deputy director of the IMF's European Department, told IPS.
“I would not look to a large contribution to financing from the BRICS soon. A token contribution is all that is likely in the immediate future. What would be the incentive for the BRICS to expose themselves on a significant scale to the risk inherent in the European situation, when the high saving countries of Europe (such as Germany) are worried about their (own) exposure?” she asked.
The dominant view of South-South cooperation indicates that a “shifting of the power relations” will somehow end the legacy of economic hegemony by now waning superpowers.
But discussions between the BRICS this week threw that assumption into question.
Chinese national economist Luo Xiaopeng said earlier this week, “After so many years of humiliation (from Europe), they (are now) kneeling down to beg from us and you cannot underestimate the satisfaction and joy that Chinese politicians derive (from this).”
“If the euro zone collapses because of the (PIGS), it would result in a global financial crisis,” said Yukon Huang, a senior associate at the Carnegie Endowment for International Peace, adding that China was unlikely to lend a hand until Europe came up with a solid solution on its own.
“China is not going to put its money into a situation where there are enormous risks and only downsides,” Huang added.
Projections like this suggest that “whatever country or group of countries holds significant shares of global wealth will be driven to preserve their wealth and place in the global economy,” Schadler told IPS.
“I doubt that from the point of view of creating a more equal opportunity for the most and least wealthy countries of the world, having former colonies or developing countries in the driver's seat will make much difference. The ways in which China has pursued its self interests in establishing its interests in commodity producing countries and resisting calls for ending global imbalances perfectly (encapsulates) this,” she added.
“While increased south-south integration, trade, and foreign direct investment have reduced reliance on Northern markets, it has also led to rising inequalities within the global South as well as tensions between rising powers – China's presence in Africa is an example of benefits and drawbacks of this cooperation,” Dahi told IPS.
“More broadly, we are witnessing a worldwide crisis of capitalism, and the type of global economy that will emerge is still not clear,” he added.