Greece and the global economy

The leaders of the world’s eight biggest economies met in Toronto on Friday and Saturday and discussed ways to better regulate the international economy and increase development. Yesterday they were joined by the leaders of another 12 countries, including the economic powerhouses China and India. As expected, the people who largely determine the economic course of the world agreed to differ. Their separate courses had been made clear in statements over the past few months, with a crescendo in the previous week: The US is pushing for a continued emphasis on stimulus spending, fearing a slide back into recession, while Germany, Britain and most other countries insist on fiscal discipline and harsh spending cuts so as to restore confidence in markets. It is difficult to reconcile these two world views, which shows how much the world has changed in a year. At the G20 summit in London last year, it was agreed that the sum of 1.1 trillion dollars would go toward supporting the international economy and that the financial system would be better regulated, after it brought the global economy to the brink of catastrophe. The crisis – and the fear of worse to come – prompted coordinated action and the search for a mechanism to succeed the exhausted system of world governance established in 1945. Today, each country is back to looking only at its own interests. What changed things so much? Very simply, Greece. As the efforts to regulate the markets and support economies seemed to avert a general collapse of the world system, suddenly, at the end of 2009, the Greek problem exploded onto the scene. The idea that a member of the eurozone could go bankrupt raised the fear that the same could happen to other countries. Portugal, Spain, Ireland, even Britain, might be next, dragging down not only the eurozone but the whole concept of a united Europe. Greece’s impasse had become a European and international problem from one day to the next. Even now, every analysis of the international economy refers to the «Greek crisis» at its heart. It’s not only Europe which is concerned but America and China and every other country that worries about its own finances and the workings of international trade. Germany, as Europe’s biggest economy, found itself caught between the need to support a fellow member of the eurozone and to ease the anger of German voters who did not want to see their money going to the «spendthrift Greeks.» This was the dominant viewpoint until it became clear that the problem was far greater than Greece, that the lack of credibility revealed by the EU’s crisis response was the deeper cause for undermining the euro and the political union. Our partners – along with the International Monetary Fund – then decided to loan us 110 billion euros over three years, on condition that we slash our debt and deficit and introduce reforms to gain the confidence of the markets so that we could one day return to them for loans. The plan was welcomed by the United States and China – who were now seriously concerned about the risks to global trade – and it also functioned as a model for a colossal fund of 1 trillion euros on standby for any other EU country that might need emergency assistance. In the last few months, the idea of coordinated action appears to have slipped. When Chancellor Angela Merkel was dithering over helping Greece, France was the first to react, urging Germany to ease the fiscal reins and encourage consumption at home, for the good of its partners. This has developed into several open disagreements, along with the more customary agreements. Last week, President Barack Obama made an even stronger case for continued stimulus spending. Germany, Britain and other countries, though, stood firm, worried by Greece’s example that if their debt and deficits kept growing, the time would come when they might not be able to pay their loans or borrow cheaply. The US, on the other hand, acts as if it will never be called on to pay its debt. The Greeks have no say in the current debate on «development or austerity.» Their road is already chosen. They have to find their own way to make austerity lead to development, to get blood from a stone.