The deepening problems in the eurozone
From 9000km away, the Land of the Spear seems simultaneously both small-minded and big-picture, myopic and antediluvian, but also far-sighted and mould-breaking. In contrast, the European media is full of sesquipedalian economists trying to make sense of the eurozone mess.
Only South Africa could spend the best part of two weeks, as it did recently, obsessing with such introverted and neurotic intensity about a piece of satirical art. Never mind the 40% unemployment rate, the national emergency in schools and the grave shortage of water and other natural resources that is on the horizon. No, never mind all that: let us mobilise around the presidential penis. An anti-modernity tendency prevailed, thanks to the populist political instincts to which the ANC is fast succumbing. Depressing.
Yet, as the Old World appears to crumble before our very eyes, South Africa is part of a New World (economic) order, thanks to the Brics (Brazil, Russia, India, China and South Africa) and their fast-growing political and economic power. Despite the precariousness of South Africa’s society and the threadbare nature of its social contract, it somehow seems a more hopeful place than much of the developed world.
It may seem obvious now, but Thabo Mbeki’s determination to build solidarity with the global South constituted a visionary combination of economic realism and political solidarity.
But there is real trouble up north. The sovereign debt crisis besetting Greece and now Spain puts the European Union, and especially Germany, under excruciating pressure. The longer-term ramifications of the European crisis are too great even to attempt to quantify, but here are a few, for starters.
First, if Greece’s new government cannot reach an agreement with the Germans to relax the terms of the structural adjustment that is being imposed in return for the cash it needs to pay its bills, it will be a long, hot summer on the streets of Athens.
Galvanise
The anger of the unemployed youth will not only spread like wildfire through southern Europe, it will also galvanise the fast-growing fascist movement. A neo-Nazi party won 7% of the vote in the Greek election on Sunday and paramilitary groups such as the Hungarian National Front are present in central Europe for the first time in 70 years. This will not end well.
And it explains German Chancellor Angela Merkel’s own constraints. She hears the argument from Keynesian economists such as Paul Krugman and now from France’s new president, François Hollande, that the state must do everything it can to inject some life into the economy, that austerity is not the right approach.
But when Merkel listens intently, she hears, too, the sinister sound of boots on the street from the 1930s. She knows that the patience of her own people is not limitless. They will fund Greece to save the euro, and thereby the dream of European unity, only if they see the Greeks taking the necessary action. They will not write blank cheques.
Merkel is carrying her people with her, but only just. Polls show that 49% of Germans would let Greece leave the euro. But if she pushes the austerity button and the drive towards European fiscal union too hard, it could also prompt a new rise of fascism.
Rocks and hard places – Merkel is squeezed from both sides of the argument. Not for the first time, nor probably for the last, Europe’s future lies in the hands of Berlin.
A second consequence of a failure to arrest the European slide is that, if Spain’s collapse induces a new banking crisis, the contagion will undoubtedly cross the Atlantic and could tip the United States economy back into recession with such rapidity that it will cost President Barack Obama his re-election.
Spine-chilling
As usual, the global implications of a Republican White House will be significant. At a recent dinner at a north European ambassador’s residence, attended by a visiting European minister of finance, the conversation was split 75-25 between Europe and Africa. Usually it is the other way round, with questions about Europe thrown in for courtesy’s sake.
On this occasion, the four of us who were there to sing for our supper with commentary about South Africa and Africa were insatiable in our appetite for the minister’s views about Europe.
The finance minister was more than happy to take us on a guided tour of the European crisis. What we heard was spine-chilling. France and Italy have their own distinct structural flaws that render them vulnerable.
But his own questions about South Africa and Africa and, particularly, about South Africa in Africa, were revealing, too, as were the answers of my colleagues.
South Africa is no longer the only game in town. Ghana is a rising star; Nigeria is headed towards becoming the continent’s largest economy, although its dependence on oil exports means it is a one-trick pony; East African economic integration is impressive in comparison with the meagre progress of Southern Africa. As capital looks for new destinations, Africa’s new narrative is promising, or so the data in Ernst & Young’s recent second annual Africa Attractiveness Survey suggests.
Consequences
But the European crisis could delay, if not derail, this progress. European demand for exports from the developing world matters greatly – to Africa and China alike. The consequences of a further sharp decline in European demand should not be underestimated either. Trade between African countries, and between South Africa and other emerging economies such as Iran, Turkey, Vietnam, Indonesia and Chile, will be a crucial strategic consideration.
South Africa needs to be alert to these trends both in terms of its position within Africa’s growth story and its exposure to European implosion. To mitigate the risk of the latter, it needs to maximise the potential of the former, but “a lack of vision” – to use the phrase of the most eminent commentator present at the Pretoria ambassadorial dinner – makes one wonder whether the Zuma government is up to the job. Is it even aware that investors are now looking at other destinations in Africa and are increasingly indifferent to South African political eccentricity?
In contrast to these very substantial issues of global political economy, the recent preoccupation with The Spear looks just plain silly.