Brazil’s lessons for indebted Europe
Some European nations' debt will have to be forgiven to resume growth. Those responsible for the financial turmoil must pay, rather than the poor. And Europe must unify its fiscal policy.
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Emerging economies have escaped this reality, with China at the vanguard. But until when? It’s obvious that a prolonged recession or a large contraction will transmit to emerging economies its negative effects via foreign trade. Before this occurs and the disaster becomes even bigger, it is necessary that there be a global understanding. This should start with the recognition that the debts of some European countries are unpayable.Skip to next paragraph
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Via a restructuring – or whatever people decide to call it – similar to the Brady Plan, it’s necessary to provide relief for the PIGS (Portugal, Italy, Greece, and Spain) and other countries whose situation is similar to theirs. Their internal and foreign debts, and the dire straits of their banks – loaded with assets whose true quality is unknown – give them no choice but to undergo a substantial reduction in the value of their debts for growth to resume. Especially if, at the same time, they’re steeped in fiscal crisis and political unrest.
There will be no political or moral grounds to proceed in such a restructuring unless, at the same time, countries better distribute the burden of these losses. The cry of Warren Buffet, followed by that of [billionaires and] millionaires in other countries, lays bare the misguided notions of the tea party, which wants to put the onus on the poorest, who had zero responsibility for the crisis.
And finally, either the European financial system is rescued by a massive recapitalization program or the euro will fall apart because of its lack of fiscal unity, and/or the European Union will effectively shrink, giving a waiver to some of its members to devalue by using once again their own national currency.
None of this will be accomplished without strong political leaders willing to redistribute global power and reorganize their fundamental views. Will there be enough strength for such an undertaking? That is the enigma of this historical moment.
© 2011 Global Viewpoint Network/Nicolas Berggruen Institute. Hosted online by The Christian Science Monitor.