Asian capitals have tended to view the EU as a serious economic and trade power. Since the euro crisis broke in Greece in 2009, with bailouts needed for Greece, Ireland, Portugal, and potentially Spain and Italy as well, however, the European Union has begun to look like a sick and declining power from many vantage points in East Asia. This image is especially pronounced in Asian financial cities, where the economics rather than the politics of the EU is widely reported. Many in Asia – a continent where states have among the highest savings rates in the world – do not understand how Europe got into this mess in the first place. Opinions and reactions of the euro zone crises vary from state to state, but some points are common.
First, governments across Asia are using the crisis as a cautionary tale against welfare state systems. They raise the bogeyman of the crisis in Europe to warn their populations against popular demands for more health care, unemployment and retirement benefits, subsidies in public education. They disparage the welfare state systems in Europe as being among the root causes of the perennial budget deficits and high debt levels behind the euro crisis. In short, the predominant liberal Thatcher-Reaganite minimal state that is now discredited in the West (and especially in Europe), is still alive and well in Asia.
Second, Asian governments have warned their populations to brace for a European ‘Lehman Brothers’ crisis trigger. They have learnt a lesson from the 1997 Asia Financial Crisis, when economies were left high and dry after international hedge and slush funds pulled out their money from Asian banks and stock markets following the run on the Thai baht. They are careful of international organizations, especially the International Monetary Fund, which imposed draconian conditionalities on Thailand, South Korea and Indonesia in exchange for structural reform loans which often caused more pain that the disease they were supposed to cure. This time, they have greater voting rights in the international financial institutions, and even occupy key positions in the global financial system. Sri Mulyani Indrawati, an Indonesian economist and former Finance Minister, is Managing Director of the World Bank group. The finance minister and Deputy Prime Minister of Singapore, Tharman Shanmugaratnam, chairs the IMF’s International Monetary and Financial committee; while Zhu Min, a Chinese economist, is now Deputy Managing Director in the IMF.
Third, many Asian states and companies have investments at risk as a result of the euro crisis. Asian sovereign wealth funds are major shareholders of some European banks whose continued viability may be in question. Rather than gloat, they are worried and are eager to see Europe recover. China holds much of its vaunted reserves (estimated at over US$3.2 trillion) in euros. Since 2010, Greece, Spain, Portugal and other EU states have courted Asian, and especially Chinese leaders to hold or buy more euro bonds and other assets. India would rather spend its reserves on domestic development; Japan has been distracted with the fallout from its March 2011 earthquake, tsunami and nuclear crisis. China has responded to calls to buy more Eurobonds, but it is unlikely to go beyond token purchases as it is already holding a huge amount of American debt. Asian capitals are nervous that the EU may become inward looking or that trade with Asia may go down; this would hurt Asian exports as the EU is among the top three trading partners of every major Asian economy.
Despite these negative sentiments and pessimism about the EU, there are some silver linings. The EU is still seen as a powerful and credible regional organization. One of the most enduring images of the EU in the popular media in China is that of a political and diplomatic power. The European institution most respected in Asian public opinion is not the Commission, but the European Central Bank (ECB). Its former president, Jean-Claude Trichet, has been well known and respected in Asian circles. Within the EU, Germany’s star is probably shining brighter than ever, with Berlin seen as the most critical player and decision-maker in the 17-member euro zone; and Germany (and to a lesser extent, France) recognized as among the key countries with the necessary resources and will to push through difficult reforms for the euro zone.