BOAO on eurozone

Europe's problem is our problem

The sovereign debt problem in Europe isn't isolated. It should serve as a wake-up call to the world, argue panellists at the Boao Forum.
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Final preparations to the main venue ahead of this week’s 2012 Boao Forum in China’s Hainan province (Imaginechina) </div>
<div style="text-align: left;"> Final preparations to the main venue ahead of this week’s 2012 Boao Forum in China’s Hainan province (Imaginechina) </div>

World leaders are meeting in Hainan this week to discuss sustainable development: and what was the hottest topic at one of the most packed sessions? Europe's sovereign debt woes.

"I think Europe and the US are getting a wake-up call," said William Rhodes, a senior advisor at Citi. "Getting these countries back to being competitive is key. And if we don't we are in for a long problem."

The irony was not lost on the 2,000 delegates in attendance at the Boao Forum Forum for Asia yesterday. The annual conference was launched in 2001 to bring together international and Asian political leaders, businessmen and academic schools "to seek cooperation for the common good and development of Asian countries" and here they are talking about Greece.

But how can they not? "The eurozone could auger for what is going to happen elsewhere," said John Chambers, chairman of the sovereign ratings committee at Standard & Poor's.

But he had a prescription for Europe that others by and large echoed: "Europe needs to bring production and consumption back in line."

"The only way out of the debt crisis is growth. We can't have continuous austerity programmes," added Rhodes.

And how do you achieve that? The panellists said the money needs to trickle down to the private sector, to the small and medium-sized enterprises that will really put it to work in the economy.

But Europe also has to make some hard choices, which historically has been what Europeans said to Asians. Remember 1997 anyone? Now the shoe is on the other foot.

"So far, the measures being taken are only addressing the superficial problems, not the causes," said Qizuo Zhang, economist and vice-president of Chengdu University. "In Europe, nobody wants to work, but they all want benefits."

A less sweeping generalisation of Zhang's worth pointing out is that Europe now needs to do the harder work. It's one thing to have a monetary union, but it's quite another to create a unified fiscal policy, and that's what is needed now.

"If Europe doesn't move fast enough, they will be left behind and it will impact the world," said Rhodes.

Amidst these dire warnings there was a touch of a silver lining. "Eurozone politicians have slowly, not elegantly, demonstrated they understand the importance of preserving the eurozone," said Stanley Fischer, governor of the Central Bank of Israel. "They may lose a country at some point, but they won't lose the euro."

And so, Fischer said he doesn't think that what is happening in Europe will lead to a renewal of the global crisis that he said started in 2007.

Here's to hoping Fischer is right!

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