Can the BRICS make up for the PIIGS?
Ever since the Euro crisis began, headlines around the world have been predicting nothing but full on gloom and doom to fall upon us.
4 years into it, the stakes are higher, and the fear-mongering has become worse. Some people however, are saying not to sweat it:
Growth in BRICS countries is far more critical for global economic health than the fate of Greece, as BRICS gains could easily counterbalance losses from Europe’s crisis, says Jim O’Neill from Goldman Sachs.“In the context of the European crisis for example, I’m fond of saying that China creates an economy equivalent to another Greece every 11 and a half weeks,” the chairman of Goldman Sachs Asset Management told RT. “So you could wave Greece off the map and in 11 and a half weeks, China creates another one.”
Now, I actually like Jim O’Neill, the dude seems to be a pretty smart, respectable guy and he’s made a lot of pretty good calls over the years. That said however, I’m calling bullsh*t.
True, the BRICS – China specifically – did play a huge part in cutting off Armageddon over the past few years, but if you ask me, if Greece goes kaput, so will they.
Let’s face it, the ramifications of a disorderly Grexit isn’t something you dismiss like that. If it does happen, Greece’s entire banking system would be wiped out in an instant, its economy will crater, mayhem will rule the streets, and once all the writedowns are tallied, Europe (and maybe even the US) would never be the same again.
Does that sound like something 4 export countries can salvage?
I know I’m being overly simplistic here, but it does seem that O’neill has broken rule #1: never fall in love with a stock – or in his case, a country.
What do you think monkeys? Am I totally off-base here? Or is China hitting 8%+ growth really gonna save us from this mess?
Enjoy your weekend, monkeys.
from the same idiots who thought a lehman BK would be containable.
Jim O'Neill is a nice guy, but China's growth is irrelevant to the people, firms and governments that have an exposure to a disorderly Grexit, It doesn't matter that other people on a different continent are managing to sell more stuff. That's before you consider the financial contagion effects, if any.
I really don't understand how some apparently smart and respected economic commentators can still be so sure of China's continued high growth. Their "secret debt" is hardly a secret anymore; mostly badly invested speculation on the somewhat bubbling real estate market resulting from a lack of alternative investment options. Whilst not entirely comparable, a parallel can be drawn with Ireland, who was grossly over-invested in its own property market bubble which was only ever going to end one way. Whilst easy to say that China is not prone to the same risks since it can "grow its way out of the problem", is this really the case? Growth has slowed substantially thus far this year, and producers are suffering from sharp deflation as a result. Add to this the economic depression of the EU, one of its biggest export markets, and I would not be so sure that China has many more golden years of growth left.
But back to your question - I agree that a Grexit is not something to be taken so lightly. The knock-on effects to Europe and subsequently China would be far greater than O'Neill is making out, and I am disheartened that someone of his apparent wisdom would think otherwise.
My 2 cents: 41% of China's export goes to Europe, so if Europe shits in the pant, China shits in the pant, and the whole world shits in the pant. Generalization: If Europe crashes because of whatever reasons (political, financial, e.g. banks collapse), the world will go with it. The only safe place may be the US, as China relays heavily in export and it's impossible for her to rewire the economy to the inner consumption, at least not possible in the near future.
more like growth in BRICS will make us worse off in long term by pushing energy prices up. Even if not, economies are not homogenic, “In the context of the European crisis for example, I’m fond of saying that China creates an economy equivalent to another Greece every 11 and a half weeks,” - do they suddenly start growing olives, produce fur clothing or what?
Greece doesn't matter. Nobody would blink if it sunk into the ocean.
We care because it could set off a chain reaction, driving rates up for the rest of Europe, and possibly charting a course for the dissolution of the EU. The chaos created would be enough to plunge Europe, and maybe the US, into another recession.
Lehman was not a giant. The US economy did not depend on Lehman's prosperity. But its failure nevertheless precipitated a financial crisis.
We are not worried about the loss of Greece's economy, but the instability it could create. China's growth doesn't help there.
China has some room to implement another round of credit-induced stimulus. Yes it would make certain GSE's more indebted, create more ghost cities, and make the country even more dependent on fixed investment, but markets will certainly like it. So if a Grexit does occur, China will most likely announce a massive stimulus program just like they did in 2008. I don't know about China "saving" the world, but it certainly looks to be in a better position than other countries.
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