By Will Henley
Christine Shields, head of country risk research at Standard Chartered, suggested at a panel debate hosted by the Commonwealth Journalists Association and supported by Global Financial Strategy that the EU is failing to take the tough decisions necessary to avert a “horrific” economic collapse.
“[These are] dangerous times,” Shields said at the event, co-hosted by think tank the Commonwealth Advisory Bureau on Monday night. “I’ve never lived through anything like this – it is unbelievable.”
Unlike with US Federal Reserve chairman Ben Bernanke, there has not so far been a recognition either by Germany’s government or the European Central Bank of the need to act quickly and decisively, Shields said.
“The policymakers don’t quite get it. They haven’t… told the German public that the costs of bailing out Greece are less than the costs of the euro failing. Until people understand that we are looking at that kind of abyss.”
The comments come as international opinion is split over whether emerging economies could, or should, come to Europe’s aid. On Friday, World Bank president Robert Zoellick said that the EU could expect no “big bag of money to buy out” its problem.
However earlier on Monday Brazil was rumoured to be pushing fellow so-called Brics countries, including Russia, India, China and South Africa, to pump around $10bn (€7.3bn) each into the International Monetary Fund to help it shore up Europe’s financial system.
Panellists at the debate – including Karen Ward, senior global economist of HSBC, investment manager Charles MacKinnon and economists Linda Yueh and Meghnad Desai – warned that, far from prospering from the decline of Europe and the US, emerging markets were likely to be badly burnt by any fresh downturn.
MacKinnon, chief investment officer of Thurleigh Investment Managers said a breakup of the euro would be “catastrophic for the Brics [Brazil, Russia, India, China and South Africa]”.
“Why? Because you need the euro as a currency to be relatively stable. In both outcomes – Germany leaves the euro or the southern European nations leave the euro, you will have massive bank bankruptcy. That is simply not a good thing. There is no varnish I can see in that.
“What would I do with my clients’ money? I don’t know. I would love to say I did. There is no safe haven. I can’t be any clearer than that.”
Ward meanwhile claimed there is a “real danger” that developed economies might revert to protectionism to deal with sagging economic growth and concern about high unemployment.
“We have done incredibly well out of free trade with the growth of the emerging markets… [However we may] resort to protectionist policies that mean that everybody suffers. For me clearly that is the way we are headed,” Ward said.
Lord Desai, the British Labour party peer, added that Europe would be “lucky” to suffer the same fate as Japan, which has suffered stagnated growth since the Asian financial crisis of the late 1990s.
“It is much worse, much much worse,” Desai said, emphasising a need to better coordinate decisions taken by the European Central Bank, European Commission and European Council. “We will just lurch from crisis to crisis. The euro will neither implode nor will it get better.
“The major task now is not to save the eurozone, but to save the eurozone banks. We can’t let the eurozone banks go bust because if they go bust we will have contagion like nothing.”