Why Asia Condemns Us to a Supporting Role

08.05.18 Publication:

Perplexed. Baffled. Disdainful. Pitying. But in the end, not really interested. Those are sort of the words and phrases that came to my mind as I asked bankers, officials, diplomats and journalists during a visit to Delhi what they thought about the European crisis.

I was in India to give a lecture about global economic trends to a mainly Asian audience, who were gathered in Delhi for the annual meeting of the Asian Development Bank, the regional public lending agency. As a European patriot, I longed to be positive about Europe and to find that the audience cared about where we are heading. I was disappointed on both counts.

In part, of course, this is because local preoccupations always trump global ones. India is suffering from disappointing economic growth, spreading corruption scandals, an ineffective government and a general feeling of political dysfunction. Rather like Italy, in fact, and naturally Sonia Gandhi’s pre-eminent political role underlines the comparison. But there was more to the disregard of Europe than just local preoccupations.

Some of it had to do with that German word Schadenfreude, pleasure at the discomfort of others. Indonesians in particular still recall with bitterness a photograph from the 1997-98 East Asian financial crisis, when the then French head of the International Monetary Fund, Michel Camdessus, stood over that country’s president, arms folded, looking like an imperial conqueror, while insisting the Indonesians sign on for fiscal austerity as the only possible solution.

Escape from the East Asian financial crisis in the end depended on quite a few Asian countries ignoring or avoiding the IMF’s fiscal prescriptions, while trying to shut down or clean up troubled banks as rapidly as possible. South Korea, Thailand, Indonesia, Malaysia and others had several painful years, but then bounced back strongly.

Certainly, they were helped by a booming global economy, and in particular by rapid growth in China and India nearby. In Indonesia’s case, political instability and civil war meant that it took a lot longer before stability, and indeed democracy, took over and the economy recovered. Nevertheless, this experience of their own financial crisis, a mere 15 or so years ago, means that Asians feel little sympathy for Europe’s plight.

They are more admiring of the way in which America, widely written off after the Lehman Brothers collapse of 2008 as being in inevitable decline, has picked itself up, has cleaned up its banks, and is now on the road to recovery, with unemployment falling to a level more than one-third lower than that of the euro-zone (7.5% against 12.1%), an energy revolution under way, and with even the manufacturing sector reviving.

Yes, America has a lot of federal debt but the dollar remains globally supreme and the important case of California has shown others around the Pacific rim how an American state that barely a year ago looked financially bankrupt and politically paralysed can suddenly turn itself round and even balance its public finances. So where is the European equivalent? Greece? No. Italy? No. Spain? No. Perhaps Ireland, but that is too small to signify, being the size of barely a suburb of Beijing or Delhi.

No, the European story is a lot harder to tell in Asia than the American one. It is hard to explain why Europeans—including the British government—think that universal fiscal contraction, regardless of each country’s economic fundamentals, can be expected to bring about revival. In a closely integrated trading zone, it is plain to Asians that this, combined with a single currency, is likely instead to bring about mutually-reinforcing recession, which is what is happening.

The European visitor responds that there is some hope that this unremitting policy of austerity will be changed after September, once Germany’s Chancellor Angela Merkel has either been re-elected or unexpectedly defeated. After all, President Enrico Letta has called for such a change. But that doesn’t sound convincing at a time when the rising political forces in our continent are insurgent anti-European parties such as the Five Star Movement, Alternative for Germany and the UK Independence Party, all of which look like disruptors rather than saviours.

It is even harder to explain why European economies have, for perhaps 20-30 years in many cases, lost the ability to evolve and adapt flexibly to changing technology, global markets and consumer tastes while America has retained that ability. The answer used to be that Europe prized social stability more than did the Americans, and so we organized our societies and economies accordingly. But even from as distant an observation point as Delhi, an Asian can see virtually no social disorder on the American side of the Atlantic and plenty of signs of it in Europe.

If that was our European Dream, then my Asian interlocutors never had much faith in it: they are too recently out of poverty to have much belief in welfare states and big government, though Indian politicians come closest to it. Now, however, they look at Europe and wonder whether the dream might soon become a nightmare, a dream of a social contract that becomes social conflict, a dream of national reconciliation that dissolves amid mutual recrimination.

No, no, said this European visitor. Like Italy, Europe may be in a coma, but it can wake up. The will to make sure that it does so remains strong, and the traits that made Europe the world leader in the past—inventiveness, willingness to embrace new ideas, acceptance of open argument, eagerness to explore the world—remain available. We, like America, must accept relative decline, since the marvellous development in Asia, Africa and Latin America makes that arithmetically inevitable. But there is no reason why we should face absolute decline, nor any reason why Europe should not remain among the world’s political, technological and cultural leaders.

Maybe, say my Asian friends. We hope so. But ultimately, as becomes clear in most discussions in Asia, they don’t care. They will visit Europe for its history and culture. But they send their brightest sons and daughters to American universities rather than what they see as the second- or third-rate European ones. Or they study locally at the fast-improving Asian universities. Europe? As Doris Day sang, “Che Sera, Sera”, whatever will be, will be.