The Greek financial crisis holds important lessons for Africa. In the first phase of the global economic crisis (2008-2009), Western banks on the verge of becoming insolvent were bailed out and recapitalised by their governments. The sums involved left countries in a precarious position, with bankruptcy threatening at least one small European country--Iceland.
After massive political instability, Iceland was pulled back from the brink and now faces at least a decade of austerity and pain. Was Iceland so exposed because it was not within a larger protective framework like the euro zone?
Apparently not. Countries like Ireland within the euro zone were equally threatened. A debt-fuelled construction boom had seen Ireland's economy achieve average growth rates of 6% between 1995 and 2007. But Ireland's economy has since shrunk by 14%, due to the global financial crisis, leading to sharply rising unemployment and savage cuts to government expenditure. Earlier this year, on the back of the cuts, the Irish finance minister, Brian Lenin, told Parliament that the worst was over. His views were echoed across Western capitals.
Then the Greek meltdown began in April, triggering the next phase of the economic crisis. This time its epicentre was within the protected euro zone and it was driven not by insolvent banks, but potentially insolvent countries--Greece, Spain, Italy, Portugal, and Ireland (again). If they don't meet their obligations to the banks that own their debts (in Germany, France, and the UK), they risk in turn producing insolvent banks, taking us back to where we were in 2008.
The massive [pounds sterling]650bn EU and IMF rescue fund to shore up troubled eurozone economies agreed on 10 May may still not be enough to prop up the insolvent countries and banks. Whatever happens, a period of grim austerity is everywhere on the cards--just listen to the new UK Prime Minister David Cameron.
It supports my view that the crisis since 2008 is being driven by imbalances in the global order, and we are in fact witnessing a fundamental re-ordering of the global economic and...