The Asian Development Bank has called for India and China to be ready to help rescue the eurozone from its sovereign debt crisis to avoid a long-term downturn that will stunt the growth of Asian economies.
Rajat Nag, the managing director of the Manila-based ADB, said the world’s two fastest-growing large economies had to “do all they can” to speed the recovery of the the currency bloc either through the International Monetary Fund or direct bilateral arrangements.
He warned against Bric [Brazil, Russia, India, China] countries looking at Europe’s difficulties in a “dispassionate way” and said that Asian financial assistance alongside European leadership and resources would help avoid a long-term breakdown in the global economy.
“We are all in this together. So anybody who can help Europe get out of the crisis is useful,” he told the Financial Times in an interview on the sidelines of the World Economic Forum in Mumbai. “Asia may be shielded to some extent but it cannot be immune. So if China and India can help, by all means.”
Europe’s monetary union has been badly undermined by a sovereign debt crisis in past months. In recent days, Italy’s borrowing costs have soared dangerously and the prime ministers of both Italy and Greece have resigned.
The unfolding sovereign debt crisis in Europe has raised fears that it could push the global economy back into recession and prompted calls for leading emerging economies to band together to help the eurozone find a solution.
Mr Nag predicted that any Asian support would be channeled through the IMF, but said bilateral assistance – like buying the bonds of the EU’s bail-out fund, the European financial stability facility – offered greater bargaining power to Europe’s Asian partners.
Anand Sharma, India’s minister of trade, said that “India will do whatever it can” to help the eurozone as its own economy was now suffering falling exports and a drying up of foreign capital inflows.
“Nobody wants the eurozone to remain unstable and turbulent,” he said. “We have monumental challenges and we have to sustain a high level of growth. It is not an option, it is an imperative, because where do we find employment for tens of millions of our young men and women.”
Others argue that developing economies like India have no business helping wealthy Europeans when they face their own profound economic challenges.
Ashutosh Varshney, a professor at Brown University in the US, said it would be politically very difficult to sell assistance to Europe to India’s 1.2 billion people, of whom as many as 800 million live on about $2 a day or less.
“Sometime they will find out that Greeks retire at the age of 50 and go on holiday to beaches and it won’t go down well,” he said.
Lee Howell, the managing director of the World Economic Forum, likewise questioned why India’s reserves should be used to keep Greece’s numerous and well-paid public sector workers in jobs in poorly managed, loss-making utilities like the railways.
Mr Nag said that the eurozone crisis threatened “significant knock-on effects” across Asia. The ADB’s forecast of 7.5 percent economic growth in Asia for 2011/12 now faced “risks on the downside” because of the threat from Europe.
He said vulnerable emerging markets needed to make “contingency plans” to protect themselves from a downturn and significant capital outflows from their economies.