Fifteen years on, the world finds itself upside down. In 1997, Asia sent contagion to the West; since 2008, Europe and the U.S. have returned the favor by sending turmoil eastward.
Now, Europe is looking to deep-pocketed Asian nations for help. It should be doing something else: learning the lessons from Asia’s collapse and impressive revival.
Asia showed the world the danger of ill-timed austerity, denial and slavish devotion to conventional economic policies amid very unconventional circumstances.
Why, then, is Europe resorting to a crisis-response toolbox that Asia clearly demonstrated doesn’t work?Because Europe has chosen the Japanese model for handling a bank solvency led financial crisis. The crisis-response toolbox reflects this choice.
Europe is still putting politics ahead of economics....Not surprising given how much the finance industry spends both on lobbying and donations to influence the political process.
Europe is forgetting that the quicker you deal with the root of financial problems, however painful that may be, the quicker you can recover from them. ...The Swedish model is focused on quickly dealing with the root of the financial problems and it has a track record of promoting fast recovery (Iceland being the most recent example).
Wall Street rescuing Main Street does in fact concentrate the pain on Wall Street.
Korea came clean rapidly about the true magnitude of its public and private indebtedness, retooled its economy and improved competitiveness. Greece has done little heavy lifting, be it restructuring debt, defaulting or leaving the euro. Denial and delay are setting the euro zone back.Korea adopted the Swedish model.
Seoul’s post-1997 reforms are paying big dividends 15 years later. Today, when the nation tosses around the marketing slogan “Dynamic Korea,” no one is laughing. ...
Where will Spain be in, say, 2027? Will it be a top 14 economy, as Korea is today? Will its consumers be using euros or pesetas? It’s anyone’s guess. Europe’s failure to heed Asia’s lessons doesn’t leave me optimistic.