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Contagious effect: Can we blame our neighbors for our recession?

Countries such as Greece, Italy, Argentina, Brazil, and Venezuela are called to respond for the poor performance of the economy in their region

Contagious effect: Can we blame our neighbors for our recession?

In the context of the 21st century, the European Union is, without a doubt, the regional alliance par excellence around the world. Measures that have been implemented as a single currency (the Euro), or the opening of internal borders (the Schengen area), have made the EU a model of international cooperation. However, what does it mean for the union when a member goes into crisis?

Leer en español: Efecto contagio: ¿Podemos culpar a nuestros vecinos por nuestra recesión?

The European Union: Italy with historical debt, and Germany as a controversial lender

What it is worth looking at, is why the experts determine that there are countries with more risk of negatively dragging the economies of certain regions than others, why crises can infect other countries in the region. For example, why since about 2011, media such as The Telegraph or Washington Post, have warned of the imminent failure of Italy within the European model and how this will definitely affect the fall of the EU.

Italy, a country with a large debt, the largest in Europe according to The Fair Observer, has been identified as the biggest loser in the European model of economic unity, due to the large number of loans as opposed to its inability to pay and borrow efficiently.

However, this is not a clear indicator of how things happen in the European economy. The BBC in 2016 put Germany under scrutiny, accusing Europe's biggest economy of actually being the real factor for other countries not to grow, due to its lending policies and its high export and low import practices, which impoverishes the other members of the euro zone.

Beside these contradictory statements are historical facts that, despite the profound changes they have brought, have not led the EU to bankruptcy: the Brexit, for example. Experts from different fields could have predicted a phenomenon such as Brexit and, when it happened, a shadow of doubt was projected on the entire European continent. Despite this, the crises have not increased in such a way that the economy collapses and the countries that pull down the indicators are still there, surviving despite the forecasts.

For Latin America, less integration does not mean less effect of contagion

The Latin American case, on the other hand, has very different connotations to that of the European Union, within which there are two that have already been mentioned: currency and borders. Each Latin American nation handles the internal affairs of the country in a particular currency, which have deep purchasing differences between them. For example, at present it is not possible to equate a currency like the Brazilian real with the Argentine peso, much less with a deeply devalued currency like the Venezuelan bolivar.

This difference also marks a difference in the development and indebtedness of each nation. Likewise, the closing of internal borders, which in reality ends up expressing itself as a handful of independent countries, contrasts with the EU as an image of unity. Although there are numerous Latin American alliances, such as Mercosur, the Pacific Alliance or the Latin American Integration Association, each Latin American country is on its own.

At this moment, 2018, the situation of countries that historically have been referents, both positive and negative, of the development of the entire Latin American region such as Argentina and Brazil are in difficult situations. Argentina, the most noteworthy example, faces an increasingly unsustainable economic crisis, with increases in interest rates and inflation that have jumped the bells of investors, withdrawing capital from the country, as reported by The New York Times at the beginning of year.

Also read:  Brazil: What would happen to the economy with Paulo Guedes as minister?

In Latin America, the situation is more delicate than in Europe, because each country must try to survive in an environment of excessive growth or investment, unbridled extraction and, in the long run, poor public policies for long-term sustainability. That is why in this region, crises can clearly and systematically affect their neighboring countries. The fragile political situation in Venezuela, for example, dyes the Colombian economy of the near future with international political overtones, generating distrust and speculation in the world market. In Europe, for its part, although there may be deep crises, banking rescues systems and the strength of some nations shield them in some way against speculation.

We must not forget, however, that the great powers are the ones that, in the end, drag the world economy. If China falls, the United States or the strongest in the EU, all countries fall behind. These economic crises can, at first glance, not have a real impact beyond the media, but their consequences can be seen in a credit, in the rates of imported products, even in access to basic goods that, in a or otherwise, they were affected by a country on the other side of the world.

 

LatinAmerican Post | Jorge Ovalle
Translated from “Efecto contagio: ¿Podemos culpar a nuestros vecinos por nuestra recesión?”

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