A Push-Me-Pull-You is a creature that goes both ways at once; rather like splurging on liquidity and demanding austerity at the same time. It is a strange mutant creature with two heads on opposite ends of its body; but don’t ask which is front and which posterior. It is supposedly a cross between the legendary Unicorn and a lithe Gazelle. And the world knows of it from literature’s Dr. Dolittle, capable of conversing with animals.
The pushmi-pullyu is a perfect metaphor for our complicated economic times. And the prescription from Europe and America is a full-on flow of money, printed by their mints and guaranteed by their governments, to keep the financial system working; while simultaneously getting reacquainted with austerity and thrift from another, older, neither-a-borrower-nor-a-lender-be era. It’s like applying the brakes slowly so as not to go into a death spin from all that reckless speed built up in the past.
It was mighty Sir Bailout again, that saved the US economy from collapse in 2008. Otherwise we might have been revisiting the Great Depression of the 1930s. Refusing to skid off the road was good strategy that prevented calamity.
In retrospect, it was a mean–spirited blunder to let Lehman Brothers go under in 2008 while saving all the rest. But perhaps Lehman was the victim of its own first-mover advantage. Keeping liquidity plentiful and intact is the open secret of ongoing economic recovery in Obama’s America. The same formula is, and must continue to be, applied in Europe.
The fact is, despite apocalyptic and hysterical prognostications, only 20 % of the Eurozone GDP is suffering from Sovereign Debt woes, made acute by negligible to negative growth figures practically everywhere in the developed world.
But for all the fuss, Greece accounts for just 1% of Eurozone GDP. The lack of confidence contagion could, of course, spread, but with sufficient access to institutional funds, is unlikely to do so. The Great Depression came about because first a hundred and then a thousand banks were allowed to fail. Today also, the others lurking on the insolvency bus are Spain, Portugal, Ireland, Italy. But together, jointly and severally, they still account for no more than 20% of the GDP that backs the beleaguered Euro.
This is not to take away from the fact that when entire countries go bankrupt because of profligate financial management, and not, say, due to catastrophe or war, it is a profoundly disturbing and destabilising phenomenon. Especially since they belong to the supposedly enlightened, democratic, developed, and “free” West.
But surely the 80% better-off in Eurozone can pull their delinquent brothers out of the mire? You’d think so commonsensically, but there are dire predictions from Left-leaning Nobel-laureate economists such as Joseph Stiglitz and Paul Krugman, who expect things to get a lot worse. They can’t visualise the bailout recipient states bucking up soon enough with their newly minted responsible ways; and hold out a high unemployment, hyper-inflation spectre, fuelled by all that freshly printed money. They don’t expect Eurozone to survive.
But the sad thing is, many centrists and right wingers around the globe are also sceptical about the West’s ability to pull it off. They see the countries already in trouble as harbingers of things to come. They think the other 80% are technically better off but not by that much.
Meanwhile, the Eurozone national parliaments are glumly voting to pony up their share of the US$ 1 trillion bailout package announced recently, and as long as this is distributed efficiently and swiftly, much of the pain and panic should indeed subside.
It’s another story that the Communist Labour Unions in Greece are acting up and don’t want to accept the austerity measures that are required as a quid pro quo by the lending agencies. They refuse to understand that without drastic reform, the first trillion dollars, already pledged, will disappear into the abyss and much more will have to be conjured up to feed the ravenous belly of the beast; and still not solve the problem.
Unfortunately for the bankrupt sections of the Eurozone, all they can hope to do is finally cut their coats according to their cloth. It is a humiliating business and is going to be painful after years of consumption led boom. This has been the American formula over the last two decades, and Europe has become no more than an American satellite in the interim. But the common man in every bankrupt country is uncomprehending and bewildered and feels betrayed by his leaders.
But they in turn are equally hoisted on their own petard. They thought the good times would go on, like Madden’s Ponzi scheme, from the US led boom through the William Jefferson Clinton years, carried on uninterrupted through the George W Bush ones and on and on, to Obamaland.
But then there was 9/11. And afterwards there was acute jingoism and war: waged half a world away in Afghanistan and Iraq and the NWFP areas of Pakistan, and even more frantic hyper growth just before the bubble burst, with housing being sold to anybody at all who cared to apply.
And the latest is that China, which has been stimulus spending its way out of its own impacted economy while propping up the West, has decided to take the warnings on a real-estate bubble developing on home turf seriously. Ergo it is cutting back on the easy money liquidity that tempted too many to chance their arm. But now the same Western analysts are saying China is sucking out the liquidity that the Europeans and Americans are putting into the global financial system!
So what’s next- currency revaluation? After all, that too is a Western demand. But if the Chinese strengthen their currency their own export led growth engines will slow and impact the already depressed Western economies yet again.
Bottom line: this is shaping up to become the Asian century despite the tremendous volatility on the global bourses at present. The growth is here in India and China and parts of ASEAN for many years to come.
And the way around our mutual problems as the MEA has been saying lately, both with regard to China and Pakistan, is not to let individual issues of disagreement or contention prevent cooperation on the rest.
(1,047 words)
27th May 2010, Buddha Purnima.
Gautam Mukherjee
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