Wrecked industries, a currency in decline, an economy in recession, riots on the streets, general strikes and runs on the banks; the IMF withholding instalments of an agreed bailout package.
This is a summary of events in Argentina during the last few years of the 1990s through to 2002 when, in January that year, its currency was refloated on foreign exchanges and its dollar peg removed.
Single currency
This currency control is one thing that Italy does not have and the latest European sovereign crisis has once again brought calls for certain countries to leave the single currency. But the pain of doing so is enough for this not to happen in the immediate future.
In the case of Argentina, by 2003 a recovery was under way and the IMF had agreed a new loan structure. From then on the country has restructured its massive debt that included new bonds being offered for those that had defaulted, while its debt to the IMF has gradually been repaid.
There are still downsides to its recovery, with unemployment and poverty the main concerns, but economically it is in a far stronger shape given the drastic action it took a decade ago.
It is time for the Europeans to do something similar.
The comment of the moment about most of the European countries is that they are too big to fail but too big to save. Instead of trying to deal with the problem overall, many are trying to prioritise, with whoever is in the news being the latest “most serious” problem.
But they are all inter-linked – as they were with the financial crisis of 2007/08 when, say, French and German banks ‘imprudently’ made loans to the Irish banks by buying their bonds – so an overall view is needed not just a pot of money to pay to one country at a time.
A problem shared…
As Invesco Perpetual’s Stephanie Butcher, European equities manager, said this morning: "There has been a lot of focus on Italy and really that’s just a function of the market pushing for a resolution [of these crises] because if one looks at the actual economic scenario of Italy, it is a long way away from being in the same trouble as Greece – or even Portugal."
It will be nigh on impossible to let one or two (or three or four) countries go to the wall for the sake of the whole of Europe – free-floating currencies would make this more feasible – so it will not happen. We need to get away from looking at remedies for one country at a time as it is too easy to be lulled into an ‘it’ll be alright on the night’ frame of mind.
It’s not going to be easy, but we will have a stronger economic Europe at the end of it all and stronger individual countries as a result.
