Europe’s fateful week
Is Seoul doing enough to prevent crisis’ contagion?
Europe stands at a crossroads. The next few days will likely decide whether the European Monetary Union, now facing the roughest waters since its launch, will sail on or strike a rock.
Greece and France elected lawmakers Sunday, the final results of which were not available before this page went to press. But their outcome, particularly who wins the Greek election, will determine the direction of the G20 summit in Mexico on Monday and Tuesday.
Come to think of it, what’s happening in the eurozone, including the Greek polls, may not change the eventual destination the Old Continent appears to be heading in. These developments will only decide whether the impact is strong and short, or gradual and long ― unless and until European leaders reach a grand compromise.
In hindsight, the monetary union itself, unaccompanied by financial and fiscal unions, was neither a good nor a responsible idea.
It was the result of hasty political ambition ignoring economic reality. There were ― and still are ― not one but two Europes: a competitive, manufacturing northern Europe and uncompetitive, agricultural southern Europe. Both sides enjoyed the benefits of a single currency in earlier stages. Wasn’t newly-reunified Germany one of the biggest beneficiaries when it decided to exchange currencies of former West and East Germanys one-to-one to help ease huge financial burdens from unification?
But that was then, and it would be hard now to demand the Germans share the plight of the Greeks, Spaniards, Portuguese and Italians, especially when the Mediterranean countries don’t appear able or even willing to emulate what their northern counterparts have done. The problem is the alternative is far worse ― splitting back to completely separate states with some of them ruled by political extremes.
Perhaps few people in the world are watching the European crisis with more mixed feelings than Koreans. They underwent a similar financial crisis in 1997 and overcame it. The nationwide gold-collection drive, though more symbolic than substantive, has left a deep impression on global villagers. What matters here is its aftermath. Korea, or more exactly working-class Koreans, swallowed the bitter pills of the IMF to correct structural problems left by know-it-all bureaucrats and greedy conglomerates.
Economic polarization is now deeper than ever, wiping out a large swathe of the middle class here, while state debt has increased to about $400 billion, five times larger than when the nation was hit by the crisis 15 years ago.
Officials still say, as they did before, there is little likelihood of the crisis’ contagion to Korea. Yet it only took five years for Spain, once the model of European economic vigor, to become its problem child. Korea’s household debt, caused both by a property bubble and polarizing income, has long passed Greece’s level to approach Spain’s. Koreans overcame the economic crisis but the winners are ironically those who caused it in the first place. The nation’s undue preference of economic globalization, blind belief in free trade and a newly-acquired penchant for financial derivatives are all factors of vulnerability at a time of global uncertainty.
President Lee Myung-bak recently chaired an export-drive meeting. We don’t deny the importance of exports, which have long been the nation’s growth engine. But he should know export cannot be a cure-all when the rest of the world is struggling. What the President and his economic team should do instead is to tighten capital flow and boost domestic demand by, for instance, knitting the social safety net far tighter.
It’s important to learn from the past, but not all crises come with the same face. Only governments that put people ahead of all else and win support from them can win in the end. Any political leaders who attack this as election-year populism must know Koreans will not collect gold if and when another crisis arises.