This post can also been seen in FPA’s Latin America Blog.
No greater nightmare would have been imagined by the technocrats in Brussels when forming the guidelines for expanding the EU than one of the new and relatively unprepared nations joining the EU becoming a candidate for removal from the Union. All nations in applying for EU membership had to meet specific economic stability levels to be able to join the Union. It was expected that most who joined the EU met the designated criteria, but in reality a global economic crisis and pressures for many European countries to become part of the economic bloc was substantial. Being a European country outside of the EU was tantamount to keeping their nations out of the largest trading regime in the region and globally, as well as forcing their currency to compete with those of their main investors in the region who would likely do business in Euros in any case. So the question arises in 2010, did Greece, and other Southern European countries have the economic stability to become part of the EU at the time they joined? and if they did not, was it an error on Brussels part or that of Athens or both?
The lesson of Greece in 2010 is not a new one, but perhaps is new for those countries within Fortress Europe. Currently officials in the EU’s largest economies are spending most of their time assuring investors that the EU is stable, the Euro is sound a lot more than a Pound, and that Greece’s austerity measures will be one of success and not succumb to pressure inside Greece from its labour unions and protestors. The fear is that the globalisation of investment will catch up to the EU as it has done with many countries in the past when investor confidence has waned in a country. The EU is not only concerned about Greece however, but most of Southern Europe as the impression of false information and lack of transparency on a country’s books can lead to a Contagion, which in the dictionary of Globalisation means a frantic rush of investment out of a country based on a large part on investor speculation. So the reaction to negative media, is positive media, and if the books are sound or have issues it might not matter if investors believe they might lose some of their investment.
In 2001 economic measures in Latin America’s two economic giants of Brazil and Argentina set the standard in IMF development programs at the time. The IADB at the time spent much of its efforts vocalising against reports that Argentina’s Central Bank did not have the funds to pay down its debt and that reserves could not support the 1 peso to 1 dollar rate established by the bank at the time. The head of the IADB in 2001 knew that any negative publicity and doubt about Argentina’s Central Bank would take any negative issues in the country’s finances and create a situation where investment would bleed out of the country at a record setting pace. The globalisation of investment meant that slight instability and bad publicity could lead to an economic tragedy, and at the end of 2001 it lead to a collapse of a scale never before seen in global economics.
In those economies in 2010, Brazil’s austerity measures and slow growth development has poised it to become one of the next Supereconomies, and Argentina’s President Cristina Kirchner is in the middle of a fight with her government, Judiciary and Central Bank to use austerity funds and her Executive powers to pay down Argentina’s debt, due soon, and reengage with the international investment community to be able to take loans again and receive a good investor rating. Whether attempting to fire her Central Bank governor and going against the judiciary helps investor confidence is questionable, but the drastic action in Argentina to recover from 2001 or Greece’s positive investor campaign in 2010 simply needs to keep liquid investments in the country and keep investors believing that their economies are transparent and investor friendly.
The reaction to the globalisation of investment by Germany in this latest Greek Tragedy and the US in handling their own debts share little difference between their issues and those of Brazil and Argentina in 2001 and after. Everyone knows that nervous investors can take an economic issue and turn it into a crisis. The closing of banks in Argentina in 2001 and blocking people legally from removing their cash from the country likely will not happen in the EU if the media campaign to save Greece does not allow for a contagious effect to break investor confidence in Italy, Spain and Portugal. In the end, EU Expansion might be on hold for the time being and the Euro will be at its lowest rate since it first became available on global markets…it was probably too high anyways, making now a good time to visit the Eurozone!
