As finance ministers and central bank governors of BRICS nations convened on Thursday in Washington, DC, to brainstorm about the greying skies of the global economy, two related logics find themselves at play without clarity as to whether they can be fully harmonised. The first logic is of interdependence, i.e. that globalisation has welded economies across the planet the way cogs fit into a wheel, and that destinies are so intertwined and coupled that one unit will inevitably feel the pressure of a crisis in another unit that is geographically far away. The second logic is of responsibility, i.e. that those who make a mess of individual national economies must be accountable for their misdeeds and realise that they are causing harm not only to themselves and their people but also to other countries with whom they trade, invest and borrow.
The bold proposals from Brazil for a consolidated bond-buying plan of sinking Eurozone countries by BRICS may not quite deliver the buck for the hoopla in terms of the massive investments needed in Europe?s southern periphery, but they raise deeper questions about these two logics.
Highly export-oriented BRICS countries like Brazil, China and Russia are actually much more interdependent with the Eurozone than less export-heavy economies like India and South Africa. Even among the former three, Russia enjoys a degree of comfort in terms of assured markets in fiscally stable central Europe, especially Germany, for oil and natural gas. Brazil?s economic boom is also driven by commodities exports. But its main trading partner is fellow BRICS member state, China, and not the Eurozone. So, the health of Europe?s public exchequers and of its private banks is not absolutely critical to the economic growth models of many BRICS countries.
Of course, interdependence in today?s world is much deeper, like a spider?s web, wherein Eurozone sovereign defaults in the ?PIGS? countries can bring down French banks, which in turn would expose credit insurance systems in the US. None of the BRICS countries can claim to have remained totally de-coupled from the post-Lehman-collapse panic three years ago. Growth rates, which are the sine qua non for BRICS being taken seriously, were shaved off in all of them by a few percentage points in the fiscal year immediately after the great crash of 2008.
Yet, a combination of high commodity prices, relatively secure domestic banking systems and robust domestic consumption enabled BRICS to ride out the storm of 2008 with some damage. Brazil?s call to the BRICS to collectively arrest the worsening Eurozone slide lacks persuasive power because BRICS know from hindsight that they can, contrary to doomsday predictions, weather a ?double dip? global recession even if it again mildly downgrades their growth projections.
Ideally, BRICS would prefer to maintain their super high growth rates that are guaranteed by a stable environment, but the sentiment appears to be that they are not primarily responsible for the mess that is ?PIGS?. Enlightened and enlarged self-interest is a hard sell to domestic constituencies, even in authoritarian countries like China.
If the track shifts from interdependence to responsibility, the onus is back on Europe?s stronger economies to salvage the wreck of PIGS and issue ?Eurobonds?. Unfortunately, Germany has led the bandwagon on fiscally strong European states that are passing the buck of responsibility to an unidentified phantom saviour. The US, by virtue of its insurance industry coming on the hook if European sovereigns default, and the EU, by virtue of its common identity as an integrated single market, have the most to lose if Greece and Italy become state versions of Lehman Brothers. American and European corporations that are swimming in profits are the main stakeholders of a Eurozone disaster. All these entities are both interdependent and responsible for the health of PIGS.
Economic history is filled with instances of irresponsibility and short-termism that allowed crises to magnify until they became unbearable fiascos. Publics and corporations in Germany, the Netherlands, Finland and the US have been warned repeatedly that when PIGS expire as creditworthy creatures, they will bring all of the former set down like a house of cards. But each of these actors has tried to get a free ride on sacrifices dumped unfairly upon citizens in PIGS countries or on the munificence of new power centres like the BRICS.
Who can bail out the Euro? Specific BRICS nations may buy a few more bonds of the Eurozone or marginally increase the lending capacity of the IMF for indirect cushioning. But as the going gets fatal for the PIGS economies, the EU, the US and their respective corporations have to show whether they are hallucinating or facing up to the realities of interdependence and responsibility.
The author is vice-dean of the Jindal School of International Affairs