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Will Greece's debt do apart Europe's union?

May 03, 2010 12:22 IST

If the economics of globalisation has come to challenge the politics of the Westphalian state, will the politics of North Rhine-Westphalia challenge the economics of European integration? The coming weekend should tell when German voters decide if Greece's debt will do apart Europe's union!

When was the last time Europe worried about a vote in Rhineland?! No one in Europe would like to be reminded of the answer. Understandably. The Great Recession is, of course, not panning out like the Great Depression but Europe's bankers of today are as focused on the actions of Germany's politicians as they must have been in those dark days.

Every financial crisis follows a predictable course. First comes the financial crisis. Then comes the economic slowdown. Then come the political fallout at home and the geo-political impact abroad. One doesn't have to go all the way back to the 1930s.

Think of 1998-99 and the Asian financial crisis. First the real estate, banking and financial crisis of 1997. Then the export and industrial slowdown and then the political crises. Thailand, South Korea, Indonesia - politicians quit, governments tumbled and even a regime collapsed. Then came the geo-political consequences - the rise of China, the decline of Japanese and American influence in the region and so on.

The trans-Atlantic financial crisis is moving along a similar track. The year 2008 was all about banks and financial institutions collapsing. Then came the economic slowdown. And now we are into a political shake-out and geo-political shifts.

A change of government appears imminent in Britain. But it is in Europe's oldest, Greece, and its most powerful, Germany, that the Great Recession's political fallout is most visible. Germany's "Iron Lady" Angela Merkel is unwilling to save the birthplace of European civilisation because she has to make sure her party wins in the provincial elections in North Rhine-Westphalia!

India's politicians have for long understood such links, between local politics and global economics. It was the economists and the technocrats of the International Monetary Fund who would refuse to when they acted tough with hard conditionality lending. But the whole world knows now the wisdom of that now commonplace adage, "all economics is global, but all politics is local".

Almost every leader of a G-20 country government around the world is pre-occupied with domestic problems even as the G-20 itself tries to grapple with the global economy. Nothing demonstrated this better than China's President Hu Jintao leaving a global summit to rush home to care for those hurt by an earthquake.

While globalisation has made economies inter-dependent and forced governments to become more outward-oriented in their thinking on economic policy, the political consequences of globalisation's crises are forcing governments to focus more on the domestic implications of global economics.

This is not a new phenomenon in itself, and the developing world is familiar with this idea of "globalisation" - but to see the great powers of the West, especially Europe, look inwards even as they reach out is new.

How ironic that Westphalia should be on the German chancellor's mind as she grapples with the challenge of political sovereignty and economic inter-dependency in the context of changing notions of nation, state and nation-state in a uniting Europe.

What is even more ironic for me is to see the European Union so exasperated by Greece! Over a decade ago, I was invited by the European Commission in Brussels to visit the EU. The invitation required that I meet EC officials in Brussels and visit one member country. I chose Greece!

The EC delegation's representative in New Delhi was aghast! Greece?! Go to Germany or France, I was urged, why Greece? Because it is the cradle of the European civilisation, I said, adding the truth that I had never been there before.

When the ambassador of Greece in New Delhi heard that EC diplomats were urging me to change my mind, a diplomatic row ensued. I stood my ground, bolstered by the Greek ambassador and finally made it to Athens! In Brussels, every official I met at the EC headquarters had heard my story and many continued to express their disapproval. The heart of Europe is in Germany and France, why bother about Greece?

It is a sentiment that is today reportedly on the mind of many voters in North Rhine-Westphalia. But if Germany will not bail out Greece, the EU will unravel. It could begin with differing views on a distant problem, like Afghanistan, and hurt the very core - the euro. Every chain breaks at its weakest link. That is the message for the European Union from Greece.

When intellectuals and diplomats from Europe give lessons in regional cooperation to Indians, I always draw their attention to the fact that the Republic of India was, in fact, the original union of the like-minded from which the EU could learn a lesson or two.

The idea of a shared Constitution, a common currency unit, a central bank of the union, a common judicial system, a common security, defence and foreign policy. The EU has been trying to do what India has achieved since 1947.

India's developed regions too complained about bank-rolling the laggards. But the Gadgil Formula and its variations, produced by the Planning Commission and the National Development Council, and the Finance Commission awards enabled the developed states to help the backward. If Gujarat can help Bihar, why can't the Germans help the Greeks?

German voters complain that the Greeks are lazy and Greek politicians have been irresponsible. Sounds a bit like what an enterprising Gujarati might feel about his Bihari counterpart.

The political consequences of Europe's economic woes are here to see. The manner in which Europe resolves the issue will, needless to add, have geo-political consequences.

Sanjaya Baru
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