BRICs and the Eurodebt Crisis

7/31/2019 BRICs and the Eurodebt Crisis

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BRICs and the Eurodebt Crisis

The BRICs economies have become increasingly important to the global economy,

world trade

and finance in recent years, especially since the global financial and economic

crisis of 2008.

The BRICs economies are also affected by the ongoing European sovereign debt

crisis; it is

hurting their economies cutting their economic growth rates, leading to a de-

acceleration of their

economies and will lead to a rise in unemployment eventually. In the case of

Brazil the

economic growth rate of the Brazilian economy for 2011 it is estimated will be

halved to 3.5%

compared to 2010. This is a major reason why Brazils President Dilma and

former President

Lula have called on Europes political leaders to take unified and decisive action to

resolve the

current Euro debt crisis, and the threat of a Greek default. It can push the global

economy into a

severe crisis, and world recession. Even China with its strong high growth

economy and large

foreign exchange reserves can be badly hurt, as the European Union is Chinaslargest export

market. This is a contributing factor in the BRICs countries offering to help their

European


2/30

economic and trade partners. China has promised to shore up the Euro by buying

up

government debt of countries like Spain, and Italy.

The BRICs countries contain more than half of the worlds population, and an

increasing

proportion of global trade and Gross Domestic Product. They cannot afford to let

the European

economies sink. China is now the worlds second largest economy and expected in

the future to

become the largest global economy, it is the worlds largest manufacturer and

exporter, and it

has the worlds largest foreign currency reserves. It has also the worlds largest

population.

However, there has been recent research to show that China is losing its

competitiveness as the

worlds global manufacturing workshop due to the effects of high inflation, and

declining

labour productivity and the USAs productivity is increasing. It is forecast that

three

manufacturing million jobs lost by America to China could eventually return to the

USA,

Various solutions have been put forward to solve the Euro economic and financial

crisis. One

radical plan is to divide the current Euro zone and to create a wealthy, financially

stable, with

strong economies and stable public finances Northern Euro, and a Southern Euro

zone of the


3/30

southern European economies with weaker economies, large budget deficits, and

economies

based more on tourism and services. This split would mean that the Southern Euro

economiescould have a softer common currency, which would be cheaper, thus exports could

be expanded

more easily and unemployment greatly reduced. However, this simplistic solution

overlooks

that trillions of Euros in contracts for trade, and investment are in Euros, this

would have a

catastrophic effect upon European banks and even northern Euro zone states. To

unscramble

the Euro egg would prove extremely difficult and costly for both strong and weak

Euro zone

economies alike. Former UK Conservative Prime Minister John Major recently

suggested in a

BBC TV interview that Greece might default, and that the Eurozone banks need toprovide

funding for European banks to increase their capitalization so they can absorb

losses from any

Greek default. Shortly French president Sarkozy and the German Chancellor

Angela Merkel

intend to unveil a plan to sort out the Euro debt crisis, which would require

increased

capitalization from the central European Financial Stability Fund, these European

banks are

mainly German and French, which have the heaviest exposure to Greek public

debt. Even


4/30

Britains Euro-sceptic Minister of Finance George Osborne has spoken out in

favour of closer

economic coordination and fiscal union for Eurozone economies to make the

monetary unionwork. Germanys Chancellor Angela Merkel, despite her serious concern over the

huge funding

involved in the bailouts of the indebted weaker Euro economies, she has strongly

defended the

survival of the Euro, and suggested that the end of the Euro would lead to the

collapse of the

European Union and its allied institutions. This and would spell the end of

European regional

economic and political cooperation and integration as we know it.

President Obama recently said publicly that the European Union needs to gets its

act together,

and quickly solve the European debt and economic crisis, which he believes could

undermine 2

the American economy and its recovery, there is the real worry of financial

contagion. Europe is

too slowly getting its economic and financial act together, the credit agency

downgraded the

Italy and Spains debt, and a credit agency in Britain downgraded the credit rating

of four

leading British banks, such as Lloyds and Nationwide, and strangely the Finance

Minister

George Osborne supported this, an apparent own goal for Britains financial

system by Mr.


5/30

Osborne.

In America, there have been peaceful protests of thousands of people in Wall

Street against the

big Wall Street banks and financial system, and the high level of unemployment inAmerica,

and the large social and economic inequality. President Obama expressed

sympathy with the

frustration felt by the protesters and many other Americans about the financial and

economic

system. These protests have now spread to other big American cities such as

Washington, and

Los Angeles.

The Eurozone governments should learn from the experience of BRICs countries,

who in the

past suffered economic meltdowns and banking crises, yet overcame these

difficulties, and are

now much stronger globally economically and politically. However, BRICs

economies like

China and Brazil will be seriously affected by the expected global recession and

economic

downturn in 2012, which can lead to a big fall in agricultural and commodities

export prices,

and the end of that boom could hit the Brazilian economy. Brazil is experiencinga deacceleration of its economy as a result of the global financial crisis, at the same

time inflation is

at a six year high of 7%, and the countrys economic growth rate of GDP has been

halved to


6/30

3.5%. There is a real danger of economic recession and job losses affecting BRICs

economies

like Brazil, Russia with its natural resources based economy, China, and India as

well.The head of the IMF Cristine Lagarde, the former French Finance Minister met her

old boss in

Paris on 8

th

of October to discuss the Euro financial crisis. Later she will have a meeting with

him and the German Chancellor Angela Merkel to debate further what economicmeasures the

Eurozone leaders need to take to bring this serious Euro debt financial and

economic crisis to a

close, and to prevent it pushing the world economy into a serious recession.

The European Central Bank (ECB) has recently said it would provide unlimited

loans to prevent

a regional Eurozone credit crunch, where banks would not lend to each other,

which would have

a dire effect on the Euro land economy. The Bank of England agreed to pump 75

billion pounds

into the economy through quantitative easing again, and decided not to increase

interest rates,

which remain at a low 0.5%. However, the British Prime Minister has refused to

provide help

for the British economy by reducing the pace of deficit reduction, both he and the

Minister of


7/30

Finance Gordon Osborne have said that there is no gain without pain; this is

despite the IMF

warning that European governments should go easy on deficit reduction and

austerity. The IMFalso surges Eurozone governments to recapitalise their banks to avoid a banking

and financial

crisis, which could follow a Greek default. The IMF said that Europes stronger

economies

should avoid imposing budget cuts at the expense of growth. They also said that

Europes big

economies such as the United Kingdom, France, and Germany should consider

delaying cuts

because they can borrow money at historically low interest rates. They also said

that an

economic recession for 2012 could happen.

The BRICs countries such as China and Brazil have offered to help the Euroland

countries, but

so far, no concrete practical aid has materialized apart from exhortations. The

President of

Chinas huge state-backed Sovereign Wealth Fund on a visit to Brazil denied that

China would

bail out the Eurozone economies with financial aid, and said that his Fund instead

wished to

step up investment and purchase of companies in growing emerging markets like

Brazil.

President Obama called for the US Senate to pass the urgently needed Jobs Plan,

which can


8/30

create many US jobs, and he said that the Senate must pass this bill, as the fragile

US economy

needs it to head off an economic recession. The US economy in September 2011

unexpectedly3created 103,000 new jobs, which was a welcome surprise, but not sufficient to

dent the

unemployment figures which remain at 9.1%. Some economists put the real

unemployment rate

at 16% when account is taken of those who have dropped out of the workforce, or

are

underemployed. Bernie Sanders the sole socialist in the US Congress, and an

independent US

Senator for Vermont suggested that this figure does not take into account the

millions who have

dropped out of the labour force demoralized from looking for non-existent jobs.

He criticised

the Obama Administration for spending multi-billions on bailing out Wall Streetbanks, but

failing to provide loans for small businesses to hire people. The big American

corporations are

holding US$ 2 trillion in cash, which should be invested instead in capital plant

and machinery,

and in job hiring to reduce the jobless rate. American businesses should be less

risk averse, and

start hiring people, this is the position of the President of Starbucks Howard

Schultz who plans

to open hundreds of new stores in the USA and to create 3,500 net new jobs this

year, and he


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has also started a campaign Create Jobs for USA, and provided US$ 5 million seed

money.

Europes economic and financial crisis continues with no immediate end in sight.

Thegovernments of France, Germany, and Belgium have nationalized the troubled

Dexia Bank; the

rescue package has pushed the Belgium public debt to a dangerous level 97% of its

Gross

Domestic product, which could cause the credit rating agencies to downgrade the

Belgium

government debt. This bank has exposure to a huge global debt of US$700 billion

($1.2

trillion), which if this bank was allowed to collapse it would set off a full blown

European

banking and financial crisis, which could have dire consequences for the weak

fragile American

economy, and spread outward and lead to a global economic crisis and slowdown.BRICs

economies would also be badly hit. The current European economic crisis has led

to heavy

financial asset losses for BRICs economies.

The main problem facing the Eurozone is that there are 17 separate national

governments and

fiscal authorities, while what is need is a common fiscal authority to sort out the

Euro countries

public finances, to prevent heavy budget overspending and big budget deficits and

huge public


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debts. The USA, Brazil has a common monetary union and authority, and that the

Euro area

needs a common central fiscal authority, which avoids the current banking and

financialproblems faced by the Euro states. One of the Euro zones smallest and poorest

members

Slovakias Parliament recently voted against the plan to expand the powers of the

European

Financial Stability Facility, which also involves expanding the size of the

Eurozone bailout fund

to 440 billion Euros (US$600 billion, 383 billion pounds). The Slovak Parliament

has now

finally approved the plan eventually, after an agreement to call soon for a general

election, but

small states hold the bigger economies for ransom, and can put the spanner in the

works for a

while. This could in the future can be avoided if a supranational fiscal authority, orbody, is

created for the whole Eurozone area, which would complement the existing

common single

currency and monetary union. There are those in Europe argue that the lesson to

be learned

from the Euro debt crisis is the need for further European integration.

One lesson that can be learned from the current global economic and financial

crisis is that it

affects everyone, both BRICs economies and developed G8 economies, and

including the poor


11/30

low income developing economies. There is a need to work out a viable solution

together to

prevent the world sliding into another world recession, as we are all in this

together, which willbe affected by a global economic slowdown and recession. In 2012 it will be five

years since

the global credit crunch crisis developed into the worst world economic and

financial crisis

since the Great Depression of the 1930s, and it has taken to long for the worlds

leaders and

central bankers to come up with an economic recovery plan. We should remember

that World

War 2 lasted only six years. The Eurozone states need to have a common

supranational fiscal

body like Brazil, UK, Australia, and the USA if the Eurozone is to work properly

and avoid

future sovereign debt, financial and economic crises. German Chancellor AngelaMerkel said

recently that there was no big bang solution to the Euro debt economic and

financial crisis.

However, the EUs slowness in responding to the Euro debt crisis of Greece and

other

peripheral economies has made the situation was far worse than it should have

been. 4

Europes financial crisis has adversely hurt a strong BRICs economy like Brazil,

which has had

to slash its growth prospects for 2011 to only 3.5%. Europe is Chinas biggest

export market


12/30

and the Chinese economy can be damaged as exports are halted. Brazil has a

well-regulated

banking and financial system, state-owned and controlled banks like the Bank of

Brazil andCaixa Economica, and which are well capitalised. Brazils President Dilma

Rousseff during her

recent visit to Europe had talks with the leading European Union leaders and said

that fiscal

policies involving cuts in public expenditures can make the economic situation

worse by leading

to more unemployment, and a lack of economic growth. A rise in European share

prices was

reversed after the pessimistic German Finance Minister cautioned that a Eurozone

debt crisis

plan might not be ready at the end of this week. This contradicts the G20 Finance

Ministers

meeting in Paris on Saturday 15

th

of October who stated that the next EU Summit would deal

with the challenges through a comprehensive plan when they meet on the 23

rd

of October.

The German Finance minister Wolfgang Schoeuble warned the Brussels European

Summit was

not expected to provide a definitive solution to the crisis, while the financial

markets want a


13/30

definite result. The G20 leaders meet again on the 3

rd

and 4

th

of November. Last Saturday they

said that the IMF needed more finance and firepower, but later they said that the

IMF had

enough funds to deal with the European financial crisis. The European Union

leaders and the

USA were against expanding the funds of the IMF, perhaps fears of giving too

much economic

and financial power to the rising emerging economies.

Two respected centre left statesmen former President Lula de Silva of Brazil, and

the ex-British

Labour Prime Minister Gordon Brown met in Madrid recently to discuss how to

solve the

European and global economic crisis. One must hope with their considerable

experience and

influence that they help to provide a viable solution to the crisis. Brazils President

Dilma

Rousseff at the IBSA (India, Brazil, and South Africa) Forum of the largest

democracies on

their respective continents, agreed to a progressive common position and

consensus on the

European economic crisis, which would mean that any solution would protect the

economic and


14/30

social interests of Europes poor low income groups, and prevent the crisis from

spreading to

emerging economies. The writer believes that Greece cannot possibly repay its

huge publicdebt, and that the richer Euro economies must fund a 60% write-off of the Greek

debt,

combined with billions in extra funds to recapitalize European banks. Otherwise, a

Greek

default would lead to the collapse of the Euro, and seriously damage the Eurozone

economies

and the European Union itself greatly. The influential Governor of the Bank of

England Mervyn

King has suggested that China should import more in order to help solve global

financial

problems; this is a very good idea. Chinas huge export surpluses and financial

reserves create a

serious imbalance in the global economy affecting both rich developed economies,and

emerging economies.

Brics currencies:-

BRICS agree to local currency credits to ease dollar dependency

The BRICS - Brazil, Russia, India, China and South Africa - haveagreed to provide credit to each other in local currencies. Officials

say the deal will facilitate economic growth in times of crisis.

The currency swap deal is aimed at promoting trade and investment inlocal currencies as well as to cut transaction costs. Its also seen as a stepto replace the dollar as a reserve currency in trade between BRICS.The idea is in line with many interests and economic exigencies in theworld economy,Yaroslav Lissovolik, the chief economist at Deutsche


15/30

Bank told RT. The euro and dollar are no longer seen as unquestionablemonopolies in the role of reserve currencies. Clearly the world needs morereserve currencies.

The deal would also increase the BRICS influence on the internationalarena and will make their cooperation less sensitive to sanctions from theWest, experts say."The BRICS countries are in the first rank to do the job that internationalfinancial system now needs. What the BRICS said was a very welcomedwake up call,"John Kirton, the Co-Director of the BRICS ReasearchGroup told RT.Russia and China have been trading in the rouble and yuan for severalyears, now Russia plans to expand local currency settlement with India.With China it took us three years to (evolve) from initial conversations to

trading in local currencies,Vladimir Dmitriev, the chairman of Russia sVEB told reporters. I think we will meet similar terms with India.

Meanwhile the swap requires a lot of technical work by each country suchas the synchronization of national banking legislation, according to Mr.Dmitriev.

The BRICS countries are also going to announce plans on a jointdevelopment bank which is considered a possible rival to the World Bankand the IMF. If established, it would function as a lending agency and

would provide finance for joint BRICS projects."They made it very clear it would be built to benefit not only BRICScountries themselves, but developing countries more broadly," saidKIrton. "But the big message was to give the World Bank more resources,only then would they see how the BRICS bank would fit in the supplementwhat theyve already got."

The cracks in the brics

As it prepares to hold its latest annual summit in New Delhi on March 28-29, the BRICS grouping Brazil, Russia, India, China, and South Africa

remains a concept in search of a common identity and institutionalizedcooperation. That is hardly surprising, given that these countries havevery different political systems, economies, and national goals, and arelocated in very different parts of the world. Yet the five emerging


16/30

economies pride themselves on forming the first important non-Westernglobal initiative.

The lack of common ground among the BRICS has prompted cynics tocall the grouping an acronym with no substance. To its protagonists,

however, it is a product of todays ongoing global power shifts, and hasthe potential to evolve into a major instrument in shaping the architectureof global governance the midwife of a new international order.

After all, the BRICS economies are likely to be the most important sourceof future global growth. They represent more than a quarter of theEarths landmass, over 41% of its population, almost 25% of world GDP,and nearly half of all foreign-exchange and gold reserves. The BRICS, infact, might also be dubbed the R-5, after its members currencies thereal, ruble, rupee, renminbi, and rand.

At the New Delhi summit, the BRICS leaders will discuss the creation ofjoint institutions, particularly a common development bank that can helpto mobilize savings between the countries. Currently, the BRICScountries constitute a loose, informal bloc. If the groups leaders fail tomake progress on establishing an institutional structure, they will lendcredence to the contention that it is merely a talking shop for countriesso diverse that their shared interests, to the extent that there are any,cannot be translated into a common plan of action.

It was just last year that BRIC (Brazil, Russia, India, and China) became

BRICS with the addition of South Africa. The BRIC concept, conceived in2001 by Jim ONeill of Goldman Sachs, was embraced by the fouroriginal countries only in 2008, when their foreign ministers met on thesidelines of a Russia-India-China (RIC) trilateral meeting. The addition ofBrazil paved the way for the first BRIC summit in 2009, which,interestingly, piggybacked on the Shanghai Cooperation Organization(SCO) meeting in Yekaterinburg, Russia, that year.

That association helped the SCO still largely a Sino-Russian enterprise to receive more publicity, but it left the BRIC countries with little space

to start formulating a unified action plan. The subsequent enlargement toinclude South Africa has made the BRICS a more global grouping, whichthreatens to render irrelevant yet another initiative, the IBSA (India,Brazil, and South Africa).

For Brazil, Russia, India, and South Africa, the BRICS grouping servesas a forum to underscore their rising economic clout and showcase their


17/30

emergence as global players. But, for China, which needs no recognitionas a rising world power, the BRICS offers tangible not just symbolicbenefits. As a result, China indeed has cast a lengthening shadow overthe group, openly seeking, for example, to control the proposed commondevelopment bank something that India and Russia, in particular, areloath to accept.

At a time when China is under pressure for manipulating the value of therenminbi to maintain export competitiveness, the BRICS frameworkoffers it a platform to expand its currencys international role. As part ofits quest for a global currency that could rival the dollar or the euro, acash-rich China plans to extend renminbi loans to the other BRICSmembers.

Lending and trading in renminbi is likely to boost Chinas international

standing and clout further. But its undervalued currency and hiddenexport subsidies have been systematically undermining manufacturing inother BRICS countries, especially India and Brazil.

Proponents of the BRICS concept nonetheless remain hopeful that thegroup can serve as a catalyst for global institutional reform. With existinginternational arrangements remaining virtually static since the mid-twentieth century (even as non-Western economic powers andnontraditional challenges have emerged), the world needs more than thehalfhearted and desultory steps taken thus far. The formation of the G-

20, for example, was an improvisation designed to defer genuinefinancial reform.

In fact, the modest measures implemented in response to the changingdistribution of global power have been limited to the economic realm,with the hard core of international relations peace and securityremaining the exclusive preserve of a handful of countries.

China is not on the same page as the other BRICS countries when itcomes to global institutional reform. It is a revisionist power concerning

the global financial architecture, seeking an overhaul of the BrettonWoods system. But it is a status quo power with respect to the UnitedNations system, and steadfastly opposes enlargement of the SecurityCouncils permanent membership. It wishes to remain Asias solecountry with a permanent seat a stance that places it at odds withIndia.


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If the BRICS countries are to jell as a pressure group in internationalrelations, they must agree on what they believe to be attainable politicaland economic objectives. For example, they are generally united in theirfrustration with but not in their proposed response tothe dollarsstatus as the worlds reserve currency. Indeed, the most importantbilateral relationship each BRICS country has is with the United States.

The BRICS concept represents, above all, its members desire to makethe global order more plural. But it is uncertain whether the groupsmembers will ever evolve into a coherent grouping with defined goalsand institutional mechanisms. In the coming days, we might find outwhether the BRICS will ever be more than a catchy acronym with anannual boondoggle attached

2013 BRICS summit

From Wikipedia, the free encyclopedia

2013 BRICS summit

Host country South Africa

Date 2013

The 2013 BRICS summit will be the fifth annualBRICS summit, an

international relations conference attended by the head of states or heads

of government of the five member

statesBrazil,Russia,India,ChinaandSouth Africa. The summit will be held

in South Africa in 2013.[1]

[edit]Background

A declaration at the end of2012 BRICS summitread that: "Brazil, Russia,India and China thank South Africa for the proposal to host the 5th summit

in 2013. They intend to provide multifaceted support for it.

Brics relationship with the global economy
http://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/BRICS#BRICS_summitshttp://en.wikipedia.org/wiki/BRICS#BRICS_summitshttp://en.wikipedia.org/wiki/BRICS#BRICS_summitshttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/2013_BRICS_summit#cite_note-0http://en.wikipedia.org/wiki/2013_BRICS_summit#cite_note-0http://en.wikipedia.org/wiki/2013_BRICS_summit#cite_note-0http://en.wikipedia.org/w/index.php?title=2013_BRICS_summit&action=edit&section=1http://en.wikipedia.org/w/index.php?title=2013_BRICS_summit&action=edit&section=1http://en.wikipedia.org/w/index.php?title=2013_BRICS_summit&action=edit&section=1http://en.wikipedia.org/wiki/2012_BRICS_summithttp://en.wikipedia.org/wiki/2012_BRICS_summithttp://en.wikipedia.org/wiki/2012_BRICS_summithttp://en.wikipedia.org/wiki/2012_BRICS_summithttp://en.wikipedia.org/w/index.php?title=2013_BRICS_summit&action=edit&section=1http://en.wikipedia.org/wiki/2013_BRICS_summit#cite_note-0http://en.wikipedia.org/wiki/South_Africahttp://en.wikipedia.org/wiki/Chinahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Russiahttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/BRICS#BRICS_summitshttp://en.wikipedia.org/wiki/South_Africa


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Economic transformation is the result of a combination of structural and politically

based factors. Russia and China sunk in the destructive chaos of their socialist

economies

through the charismatic force of their original leaders. Despite being efficient whenit came to

party organization, these leadersLenin and Maowere unable to grasp the way

in which a

modern market economy works. In Russias case, the transition to capitalism has

remained

erratic, whilst China has seen a combination of political authoritarianism and firm

guidance

towards a market economy. China is unique in world history in terms of its

sustained growth,

with structural transformations that have an enormous social impact.

In the case of Brazil and India, transformations have been due less to a directed

return to the market or revolutions from above than to the deep forces of

their semicapitalist regimes, whose creative energy was released by economic

opening and trade

liberalization. Brazils central problem was to break with self-feeding inflation and

the

pernicious effects of exchange rate pressures. This process was conducted in full,

despite the

financial turbulence that threatened an adjustment between the second half of the1990s and

the beginning of the 2000s. India, meanwhile, had to lift itself from a Mesozoic

state of


20/30

planned economy and over-zealous protectionism. Although it faced some delays,

this process

was facilitated by a high-quality economic Diaspora in the main developed

economies aphenomenon that also took place in Chinese history, but with different

characteristics.

Strictly speaking, China seems to have reproducedat a higher adaptation pace

and

with the huge ambition of rapidly recovering from the lost decades of crippling

socialism

the Japanese experience of the Meiji Revolution. It has sent its offspring to learn

from the

scientific and technological leaders of advanced capitalism. Above all, China has

focused on

the Japanese post WWII miracle, in which the country copied and adapted Western

knowhow with extreme care and quality, in order to make the same products with

its own designs

and brands. China is the only emerging nation among all the Brics that seems

destined to 5

convert itself into a dominant economy, as well as a technological and military

power.

However, the country is still very far from offering its citizens many of whom

are still

subjects of an authoritarian regime the level of individual well-being enjoyed by

the

populations in advanced capitalist countries.

Russia has lost territories with important natural and human resources and

therefore


21/30

does not seem close to recovering the political and strategic relevance enjoyed

during the

height of its geopolitical expansion at the end of the 1970s. Despite owning a

formidablenuclear arsenal and the capacity for some military projection, the country is in no

condition to

challenge the two global economic giants of the mid-21

st

century. Russias resources are finite

and its demography is declining, albeit having a high quality human force.

India, for its part, is apt to master, with competence, the electronic services it

already

offers with expertise. It will, however, have to absorb into the market economy

hundreds of

millions of rural workers stagnating in an ancestral economy. Brazil has almost a

generation

ahead of it to benefit from a demographic bonus, namely the best possible

relationship

between the economically active and dependent strata of people. This opportunity

will

probably be missed, largely because of the low levels of technical qualification and

education

among the population, which will reduce productivity gains.

These shortcomings should not prevent the Brics from gaining greater relevance,

which they will through their heavy demographic weight and growing consumer

market, with


22/30

the possible exception of Russia. But they will be unable to reach the levels of

technological

excellence of nearly all of the countries of the advanced capitalist world. Once

again, theexception should be China, which will reproduce Taiwan and South Koreas

technological

performance with surprising rapidity.

In the case of liberalizing capital movements and trade policy, Bric approaches

tend to

vary, although tending towards the adoption of a pattern more propitious to those

countries

international economic integration. This is in contrast to the restrictive policies

adopted by all

of these countries less than a generation ago. The most important ruptures took

place,

obviously, with the two socialist giants, as in contrast Brazil and India were on the

edges of a

capitalism characterized by an overwhelming state presence. These latter two

countries were

founding members of GATT and were there at the very start of the Bretton Woods

institutions, without having to necessarily take on their prescriptions for economic

policy.

China and Russia joined the IMF and IRBD as soon as they overcame ideological

restrictions to these symbols of the capitalist world, but the process was more

complicated in

the trade sphere. It took 14 years for China to be admitted to GATT, something

that took 6


23/30


24/30

in combating farm subsidies and protectionism (which should include Brazils

G20 allies

China and India).

The monetary, trade and foreign investments policies of the Brics are as varied astheir

forms of global insertion, but the results are reflected in current accounts. Brazil

came out of a

quite fragile situation between the second half of the 1990s and the beginning of

the 2000s

which prompted it to seek preventive financing through three agreements with the

IMF (1998,

2001 and 2002) into a relatively comfortable international position of foreign

reserves

higher than foreign debt. With its huge trade surpluses, China is on the way to

further record

currency reserves, and should remain as a dynamic exporter in the foreseeable

future.

Russias trade surpluses are either growing or comfortable, but its structural

position is fragile

due to its dependency on oil and gas. Indias deficits, despite rising, are

manageable in

relation to its also growing economy. All those scenarios should suffer the impact

of the

international financial crisis started in the U.S., but emerging economies are

expected to

maintain a higher rate of growth than those of OECD group.

3. What will be Brics future impact on the global economy?


25/30

The justification for the Bric acronym, according to its original proponent, is the

extent to which these economies have an impact on the global economy, as well as

their

capacity to shape the future of other developing nations. Barring Brazil, with verymodest 7

growth rates over the last years, the three other Brics have been gaining weight

and

importance globally and within sectors.

In theory, in a few years the Brics will represent a fifth of the global economy and

in

two decades will overtake the G7. This aggregation of individual volume might

make sense in

this type of intellectual exercise, in which arithmetic seems to prevail over politics.

However,

it is unlikely to indicate global economic development trends, as these are caused

by

technological transformation and capital, scientific and strategic information flows

as

shown by the history of capitalism.

In fact, given their demographic importance and the growing dissemination of

technology and direct investment, we could say that developing countries share in

global

goods and services exports and GDP will certainly rise above current levels. This

is an

elementary conclusion that adds nothing to the other aspects especially

institutional and


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political that interact with the structural forces that shape the global system.

Basically,

despite the Brics decisive economic impact, this feature by itself says nothing

about the otherfactors behind a complex relationship that goes beyond GDP and exports, and into

reciprocal

interdependency not between the Brics but between each of them and their

various

economic partners. From this point of view, the Brics group do not have an

economic

existence per se and is purely a creation of the economic spirit.

Despite arguments about the decoupling of the main emerging economies from the

G7

and other developed nations economic cycles, the truth is that the dominant

economies

impact on Bric is more decisive than normally admitted. It is not only about

consumer

markets and direct investment sources. The global economy is not just an

economic space for

the exchange of goods and services, where each nation can have greater or lesser

physical

interaction. It is, essentially, an arena for the exchange of ideas, in which the

intellectual

domination of the so-called developed Western world looks set to remain

throughout the

foreseeable future.

When we look at the overall picture for the global economy, we reach an inevitable


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conclusion: the same forces that have transformed the world since the 16th century

are still

shaping the contemporary world. These forces include not only the flow of goods

andservices, but forms of economic organization and above all, the production of ideas

and

concepts to support those physical flows. Therefore, it is inconceivable to consider

that

developing or emerging nations could be independent from the core of the global

economy.

The path and economic destination of the Brics and other emerging economies

cannot be

different from those followed by developed nations. The latter set the basic

parameters on 8

which the economy is based. However, this dynamic process is not exclusive to a

specific

center, but shared by several centers producing and spreading ideas and practicalknowledge.

The apparently novel concept of Bric is a trouvaille that has occupied journalists

minds and instigated the imagination of academics in their search for new ideas.

This concept

seems to induce those concerned with the old hegemony to seek a rupture with and

the

replacement of an old system. It is historically rare to have peaceful attempts to

change the

balance of world power, as the beneficiaries of the status quo tend to resist the

contesters


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demands for a new space in the old order. If these expectations are not met, the

new

contestants could opt for changing this order by their own initiativehopefully

throughpeaceful ways, but if necessary, they will try through violence.

Once the fascist contesters of the inter-war period were contained, defeated and

radically transformed, the geopolitics of world power began, as of 1947, to be

dominated by

Soviet expansionism without direct confrontations with the US. Conflicts took

place often via

proxies, with each side advancing and retreating in peripheral arenas where the

crucial aspects

of the great game were being played. This Third World War ended without the

conservative

hegemon winning a victory; the defeat of the economically weaker side was

actually brought

about by the implosion of a senile socialism that was incapable of competing in

terms of

productive efficiency. After the USSRs spectacular demise and in a moment in

which the US

emerged as the only superpower, the world seems to be moving towards a

transition. This

new stage sees the US decline and Chinas ascendance, the reaffirming ofRussias strength

or the emergence of new players (India, Brazil, the European Union), which could

redistribute

the cards in new strategic scenarios.


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Whatever the future of global geopolitics in the 21st centurybe it a new Cold

War of

a Cold Peace it has nothing to do with being a member of a group invented by

aneconomist, even though there might be conflicts generated by some of these

members

candidacy as emerging global powers. The Brics situation is accidental and

fortuitous,

whereas being a global emerging economy is a structural condition that was

acquired by a

long and slow process of productive and technological qualifications that will

naturally

convert into military and political power.

Brics two former socialists have authoritarian characteristics that represent a

legacy

of centuries of totalitarian states. The other two members have had democratic

trajectories -

with faults in terms of functioning and social justiceand are the market

economies closest

to capitalist organization patterns. Of all the members, Brazil has the most

advanced capitalist

structures and the most modern society. It is also the most integrated society in

language, 9

cultural, ethnic and possibly religious terms, which in principle enables a more

efficient

political administration - without institutional ruptures - and more favorable

conditions for


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modernization. Although social democratization can slow growth and adaptation to

new

environments, it also contributes to greater cohesion around national goals.

The main issues dividing the world today are no longer ideological, as they wereless

than three decades ago, when competing projects were trying to win peoples

hearts and

minds. Neither are they technical, as there seems to be reasonable consensus and

collaboration among the worlds researchers and scientists about the challenges of

medicine,

physics and biology. Todays main dilemmas are about political priorities and

alternative

economic measures to be chosen by heads-of-state for solving the age-old

problems that

afflict mankind: hunger, unemployment, health, education, security and welfare.

Experience in the recent past about these choices and attempts to impose them on

whole societies in an authoritarian manner, does not reflect well on some of the

solutions

proposed by radical challengers to the status quo. We do not have to go back to the

terrible

example of Nazi Germany or militaristic Japan to conclude that emerging powers

tend to be

hasty competitors ready to use violence if necessary to challenge the power of

older

hegemons. That History lesson must have been learned, however. Let us hope this

time it will

be different.

BRICs and the Eurodebt Crisis

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