Swedish Prime Minister Fredrik Reinfeldt terms the Eurozone economic crisis ‘serious’ and has been quoted as saying: “In reality, we’re talking about one of the greatest financial rescue operations the world has seen.” He was responding to a question by Swedish Radio after it was known that Spain may be the 4th member of the 17-nation Eurozone to seek outside help. It is expected that Spain would be seeking $ 100 billion from IMF to rescue its banks reeling under toxic real estate loans. To understand more, I looked into the work of Paul Krugman, who thinks no lessons have been learnt ( The EurpTARP Cometh — http://nyti.ms/KrjgeN).
I found an interesting letter among the comments to Paul Krugman’s blog. Someone wrote, and I tend to agree, ” Spain now gets $ 100 billion for pumping into banks that won’t lend, won’t create jobs, not even invest any amount into any part of the Spanish economy.” Well, this being true, I don’t understand why is the Spanish government or for that matter IMF bosses unable to stop the intended bailout of Spain banks. As another blogger wrote: “An unemployment rate of nearly 25% combined with negative GDP growth should be treated as an economic emergency. All of the focus should be on addressing unemployment and boosting economic growth, not on bailing out banks.” (http://www.disequilibria.com/blog/?p=216)
Bailing out defaulting banks has become the standard solution to the economic crisis. It happened in 2008, when close to $ 20 trillion, were pumped into the global economy. Much of it went to service the bank debts, and we have all read disturbing reports of how millions of dollars were given as bonuses to the erring bankers — people who should have been in jail were awarded with handsome financial packages. This did not prop up the American economy either, which is once again in the throes of an unforeseen crisis. The American economy is on an artificial ventilator — using ‘quantitative easing’ to survive before it can muscle developing countries to open up for US goods and services, and also arm twist countries like India to allow FDI in retail and insurance.
What will happen if we allow the Spanish banks to collapse. Will Spain turn into a beggar? Or will the Spanish people flee to other countries? I don’t think any such thing will happen. Instead, the bailout package should be used to create more jobs. And that in turn will boost the economy. The same prescription holds true for other major economies. India, for instance, should focus more on creating jobs and feed the 320 million people who go to bed hungry. China, which is also in the midst of a recession, now becoming more obvious, should shift focus to creating more domestic demand and create more employment opportunities by turning agriculture profitable. The lure of population from the rural to the urban areas, and the thrust on rapid (and often environmentally destructive) industrialisation has already ruined the national landscape and has turned the country into a large export factory. This is unsustainable in the long run, and once the bubble bursts it will all be doom and gloom.
I had always thought that copying is the prerogative of only those who infringe on proprietary rights. But now I realise that governments all over the world have been merrily copying the economic model of growth from the US/EU. No wonder, every nation is in soup. Perhaps, the world would have been safe economically if the US had used its muscle power by bringing in provisions like Super 301 to stop other governments from copying its terribly flawed economic model, which has now brought the world to a brink. It isn’t too late. But as many others agree, the world hasn’t drawn any lessons. They continue to allow the banks to rob the national exchequer. As another commentator said: ” Bankers have become the biggest thieves in the history of the world…the global economy will never recover while it is being bled to death to rescue the fantasy balance sheets of the institutions and individuals who pyramid paper, buy governments and equate theft with economic production.”
By Devinder Sharma
11 June, 2012
@ Ground Reality
Devinder Sharma is a food and agriculture policy analyst. His writings focus on the links between biotechnology, intellectual property rights, food trade and poverty. His blog is Ground Reality