SINGAPORE — Not since the World War II fall of Singapore to the Japanese army in 1942 has Europe’s star sunk so low in the East. The clash of civilizations and cultures displayed by the disarray in the euro area is not just between stern Germany and profligate, stubborn, wayward, intractable Greece.
The “shall we – shan’t we” deployment of the national referendum weapon in Greece’s fight over membership of the euro is reminiscent of the worst times in Byzantine history. The gulf is best exemplified by the stunned incomprehension among Asian monetary officials towards the shortcomings and disappointments that have led the Europeans to lose control of what was until a short time ago a prestige project for continent-wide integration.
In just 24 hours last week, European monetary theology that had taken a generation to build was placed comprehensively in abeyance. Only a short while ago, any idea of a Greek exit from economic and monetary union (EMU) was rejected by Eurocrats as entertained only in the ravings of madmen.
Yet it suddenly became bitter reality after Athens premier George Papandreou’s since-rescinded referendum call.
In a week of conversations with leading players in China, Malaysia and Singapore, I have heard an unprecedented litany of charges by senior people against the elite of European decision-making.
Criticisms of “arrogance,” “incompetence” and “not getting it” have been mixed with near-incredulity that EMU may be about to tumble into the yawning abyss between the problems facing the euro area and the firepower mustered to resolve them.
“Matters will be worse before they get better,” says one authoritative figure.
One leading official-sector economist says Europe faces a terrible choice. Either the European Central Bank makes perhaps $1 trillion worth of purchases of weak country debt. Or the euro disintegrates into a German-led “core” and a freely-floating southern rim.
The former course of action would be sufficient to calm the markets, but would send the Germans into a paroxysm of nerves about incipient hyperinflation.
Mario Draghi, the incoming ECB president, set his face against widespread bond purchases at his inaugural press conference on Thursday, when he presided over a quarter-point cut in the bank’s leading interest rates to head off recessionary dangers.
Whatever happens to predictions of early elections in Greece, it is clear that the time is approaching when Greece itself makes a decision on whether or not to stay in the euro. I have always said that any Greek departure would be decided not by the Germans but by a sovereign decision of the Greeks themselves. That day may now be not that far off.
In almost any scenario in the next six months, Europe’s credibility on the international stage will be seen to have collapsed. Asians scoff at Europe’s lack of resolve, coordination and stamina. All characteristics, they say, that Asia has put amply on display in the 15 years of recovery from its own financial crisis in 1997-98.
One well-connected Chinese financier points out that, during the Asian crisis, Koreans sold gold to help the government, whereas the Greeks go on strike. He underlines that, even if Europe does get more finance from among the fast-growing economies, China is not expecting Europe dramatically to increase its higher-value imports from China. “We export a lot of labor-intensive products, we get dollars in return. We buy euro bonds, and they decline. We’d be better of investing in developing countries’ infrastructure or buying high-tech European companies.”
The euro was a project intended to stamp Europe’s influence on the world. It risks turning the continent into a backwater.
David Marsh is chairman of London and Oxford Capital Markets.