ETD_2012_6_3_19 | Greek Government Debt Crisis | Asia


JUNE 03-09, 2012


West Finally Has to Choose: Be Germany or be Greece
The debt crisis happened because the West wanted to feel rich forever. Minus tough calls, all-round insolvency is a very real prospect
:: William Avery

Socialist party supporters at a rally in Greece. But Europe’s problems didn’t begin in Greece


he current European debt crisis did not begin with Greece, even if it cooked its books to get into the eurozone. It did not begin with the European Union, even if it set up a currency bloc without fiscal or political union. It did not begin with the United States, even if its burst housing bubble (inflated on top of a burst dotcom bubble) caused a global banking and liquidity crisis whose effects have lingered since 2008. No, today’s debt problems began in another part of the world: Asia. Up until the 1980s things had been going so well. The United States emerged from the Second World War with undisputed global economic dominance. Through the Marshall Plan the United States helped Europe recover from the war’s devastation and become rich again. By the 1970s, the United States and Europe — collectively known as “the

West” — accounted for half of the world’s GDP with just 15% of its population. Meanwhile, in “the East” things were not going nearly so well. India and China, together over one-third of the world’s population in the 1970s, accounted for just 8% of its GDP. This was the “natural order” of the post-war era: the United States and Europe were rich and Asia (apart from Japan) was poor. The system worked, and everyone was happy. Well, at least the rich parts of the world were.

Asians Get an Idea
But the Asians were not happy. Around 1980 they somehow started getting it into their heads that they should enjoy the same material comforts that Americans and Europeans were enjoying. They wanted jobs and cars and houses and good education for their children.

And that is where the world’s current problems really started. What does Asia becoming richer have to do with today’s problems in the United States and Europe? Debt. Leaders in the West took their nations into debt to try to hide from their citizens the inevitable consequence of a richer Asia: that some Americans and Europeans would become poorer as Asians became richer. It is well known that some Western workers have suffered due to the shift in economic activity to the East. Not so well known is the connection between those who lost out during Asia’s rise and the tremendous debt that Western nations now hold. Is it a coincidence that both the United States and Europe, having been fiscally responsible for decades after the Second World War, began to incur

heavy debt only after their workers first faced real competition from Asia? When Asia’s giants began to reform their economies (China in the late 1970s, India in 1991), Western businesses, seeing that Asians were willing to work for far less than Western workers, noticed an opportunity: they built factories in Asia, first to produce goods more cheaply for home markets and later, as Asians developed more purchasing power, to sell goods to the Asians themselves. Container ships carried goods from East to West and returned (largely empty) to pick up more.

The Net Effect
We all know the rest of the story. The internet came, and with it the export of services too: Asia and especially India built call centres, followed in turn by centres for software development, R&D and

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