10 March 2013

John Thornhill: Europe's woes leave Brics exasperated

Writing for the FT, Thornhill says there is a gnawing realisation among the region's leaders that economic stagnation and political turmoil in Italy and beyond are now rapidly eroding Europe's way of life and its global relevance.

Changyong Rhee, chief economist at the Asian Development Bank, says that many Asian countries are concerned that Europe could trigger another round of global economic uncertainty, because of persistent recession in several eurozone countries, political instability in Italy, and talk of the UK quitting the EU... The Korean economist says the eurozone must finish the reforms it has started for the sake of the global economy, as well as its own self-interest. “The institutional building is incomplete”, he says. “If Europe stops now there will be serious global consequences.”

That makes it all the more troubling that some UK politicians are talking about the possibility of withdrawing from the EU, he says. “Many people understand why the UK is concerned about staying in the EU. But what worries us is if the UK leaves will it trigger a domino effect in Europe. The worry is that there will be an unravelling of the EU. It may be a selfish perspective from an Asian point of view but one country’s decision will affect the whole global economy.”

For the moment, Europe still matters hugely to many emerging markets, according to Gill Marcus, governor of the South African Reserve Bank. Not only does South Africa have close historic ties to Europe but the country also sends 38 per cent of its manufactured goods exports to the region, according to Ms Marcus. “But we are seriously concerned about what is happening in Europe”, she says. “Assuming nothing gets worse Europe will still have a very long recovery time. It will become all the more imperative for emerging markets to diversify.”

In a sign of the times, South Africa is hosting the next Brics leaders’ summit in Durban in two weeks’ time, seeking to strengthen its relations with the more dynamic economies of the world.

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