http://www.bloomberg.com/news/2011-06-26/what-europe-can-learn-from-asia-s-1997-crash-william-pesek.html
No. 1: A default is unavoidable. What makes Europe’s bailout efforts so hard to watch is that they are so futile. The Greek public has been very consistent about one thing: the belief that it bears no responsibility for all the debt its leaders took on over the last decade. If that doesn’t provide the backdrop for debt repudiation, what does?
As Greece runs through more and more of the funds its European neighbors throw at it, other dominos will fall. We saw that in Asia after Thailand devalued the baht in July 1997. Indonesia swore up and down it wouldn’t get dragged into Thailand’s mess -- until it was. Korea assured the world it would avoid an IMF aid package -- until it couldn’t.
The U.S. and Japan are near recession. China’s boom continues to squeeze wages in uncompetitive economies such as Greece. This won’t end well for the euro zone.
No. 2: Recovery is quicker once debts are purged. Greece fudged its way into the common currency with the help of Goldman Sachs Group Inc.’s financial creativity. That leaves the government in Athens with a yawning credibility gap. When it says the country can close its budget deficit with stop-gap measures, traders roll their eyes and policy makers lose more sleep.
In December 1997, Korea caved in and sought a $57 billion IMF bailout. It acted quickly to let weak companies fail, closed insolvent banks, clamped down on tax cheats and came clean about the magnitude of its debts.
Greece will have to restructure its debt, and the fallout from this will increase pressure on Portugal, Spain and Italy. If Greece had acted a year ago, markets might not be spending every waking moment on edge over how and when a default will arrive.
“Asia’s crisis showed that the quicker you deal with the root of the problem, however painful that may be, the quicker you are likely to recover from it,” says Simon Grose-Hodge, head of investment strategy for South Asia at LGT Group in Singapore. “Europe could do worse than to heed that lesson.”
No. 1: A default is unavoidable. What makes Europe’s bailout efforts so hard to watch is that they are so futile. The Greek public has been very consistent about one thing: the belief that it bears no responsibility for all the debt its leaders took on over the last decade. If that doesn’t provide the backdrop for debt repudiation, what does?
As Greece runs through more and more of the funds its European neighbors throw at it, other dominos will fall. We saw that in Asia after Thailand devalued the baht in July 1997. Indonesia swore up and down it wouldn’t get dragged into Thailand’s mess -- until it was. Korea assured the world it would avoid an IMF aid package -- until it couldn’t.
The U.S. and Japan are near recession. China’s boom continues to squeeze wages in uncompetitive economies such as Greece. This won’t end well for the euro zone.
Purge the Debt
No. 2: Recovery is quicker once debts are purged. Greece fudged its way into the common currency with the help of Goldman Sachs Group Inc.’s financial creativity. That leaves the government in Athens with a yawning credibility gap. When it says the country can close its budget deficit with stop-gap measures, traders roll their eyes and policy makers lose more sleep.
In December 1997, Korea caved in and sought a $57 billion IMF bailout. It acted quickly to let weak companies fail, closed insolvent banks, clamped down on tax cheats and came clean about the magnitude of its debts.
Greece will have to restructure its debt, and the fallout from this will increase pressure on Portugal, Spain and Italy. If Greece had acted a year ago, markets might not be spending every waking moment on edge over how and when a default will arrive.
“Asia’s crisis showed that the quicker you deal with the root of the problem, however painful that may be, the quicker you are likely to recover from it,” says Simon Grose-Hodge, head of investment strategy for South Asia at LGT Group in Singapore. “Europe could do worse than to heed that lesson.”
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