The last minute lifeline thrown to Greece to keep it from possible default opened a series of urgent questions on the future of the single currency, Europe as a political entity and, more in general, the relationship between finance and the real economy. The crisis concerned not only the precarious economic and social situation of Greece – which will inevitably have to pass through a period of deep-seated and predictably painful restructuring. It also shed light on the series of actions that should be taken to prevent possible contagion with other European countries. This contagion could create risks for Europe as a political project and smother world economic recovery. In this sense, and partly to avoid the much-feared double-dip, our focus should be on the lessons learned from the Greek crisis regarding the identity and operation of European institutions.
On one hand, we see the need to redesign and complete the political and governance structure of Europe. This should include contemplating the hypothesis of new institutional structures, such as a European Monetary Fund, or a central observatory supervising the accounts of Member States that, with wider powers than those that actually exist, allow more effective monitoring of data and stricter tax discipline. On the other hand, there is confirmation of the key role played by the European Central Bank, which must be allowed to use autonomous, flexible, prompt intervention in situations of financial tension without undoing its original mission or undermining its present credibility.
Widening horizons from the European context, the analysis moved to the origins of the financial crisis, which were not casual elements. Instead they were the necessary consequence of widespread economic and social phenomena. In particular, the crisis underway can be seen as the fruit of globalization or, better yet, of mistaken globalization management policies. In just a few years, access of foreign goods and capital to international markets has brought emerging countries with populations of roughly three billion in contact and integrated extremely disparate economic models, producing large disparities in trade balances, the flow of capital and savings.
The recent financial crisis is inevitably a phenomenon of adjustment and rebalancing that has had a serious impact on a growth model, especially for the advanced economies, so far based primarily on debt. On the contrary, in this new context we will be seeing incisive deleveraging in countries that are for now forced to significantly increase their deficits, even though they will later have to face this higher debt with large cuts in public expenditure. The lower costs will nullify one of the stimulus levers available to national governments and will make it necessary to identify alternative engines of growth and support for the real economy.
In this framework, the growth of emerging countries seems to be a natural candidate to substitute the driving force that has so far belonged to public expenditures. The growth of developing countries seems strong, even in the face of the slowdown in many advanced economies. Still, some elements of structural fragility and imbalance – including the risk of an overheated economy and bubbles – are becoming progressively more visible and in the medium and long term could undermine the further development of emerging economies.
The role of banks and financial brokers in supporting growth and acting as liaisons between finance and the real economy appears problematic. Credit operators are both the cause and the victims of the financial crisis. In this phase, they are being asked – and this is a contradiction in terms – to support restructuring and, where possible business growth and, at the same time, strengthen their own assets. The consequence is deleveraging and an extension of credit reduction.
The framework is based on an expected reduction of public expenditures, a complete overhaul of some economies, imbalances in the strong but sometimes unorganized growth. For that reason, a debate on the present economic paradigms of growth and their sustainability is more urgent.
In particular, innovation is a possible way of ending the financial crisis. Only incisive, widespread innovation can create new sectors that, in turn, can stimulate the rest of the economy. Governments should therefore focus their attention on the kind of context and competitiveness that facilitates innovation, even in emerging countries or those still standing at the edges of development and international exchange.