There are important lessons for Asia in Europe’s repeated breakdown, especially now as many years of all sorts of efforts have apparently failed to stem the tide, and a breakup of the single currency union seems imminent. With Greece expecting a hole-in-the-dyke scenario any moment, and austerity failing to sooth strained Italian and Spanish economies (Europe’s 3rd and 4th largest), there just isn’t money with European monetary authorities – while harsh austerity has left little further to milk out of the people – to keep the union together any longer. Defaults are going to follow, with cataclysmic spillover in commodity and currency markets.
Unfortunately, contraction across Europe will bite into Asia’s most profitable business – exports. Recovery on the other side of the Atlantic too is shaky at best, though far, far better than Europe. Little surprise, then, that even the growth engines of India and China have begun slowing down. And that will unsettle the other end of the emerging market supply chain. Commodity plays like Australia, New Zealand, etc, that provided the raw material for the furious expansion, will also decelerate, causing Asia-Pacific to slow in general.
Even though Pakistan has remained largely decoupled from mainstream globalization, Islamabad has increased its trade and investment outreach of late, betraying a special liking for the emerging market phenomenon. Therefore, it must factor in from the European example that employing austerity at a time of low indigenous growth tends to strain international linkages. Any growth drive must now be prompted by wide mobilisation of capital and unclogging of capital markets. The exercise will require both increased public spending in the form of fiscal expansion, and stimulated private sector growth, easing the job market.
