Recently, the newly elected Italian prime minister, Enrico Letta, called on his fellow Italians and the 17-member euro currency bloc to promote economic growth and put an end to the reigning austerity measures widely believed to be the panacea to the sovereign debt crisis in Europe.
In his first address to the Italian parliament, Letta said, “We will die of fiscal consolidation alone, after 10 years without growth. Growth policies cannot wait any longer.” He said he would in the coming days be meeting with the continent’s leaders in Brussels, Paris and Berlin to push for a change of policy. That is changing Europe’s focus on solving the debt crisis through cuts in fiscal spending, raising of taxes and moratorium in governmental recruitments. His call came on the heels of Greek lawmakers’ adoption of a law that advocates the retrenchment of 15,000 civil servants by the end of 2014, with the first phase coming up by the end of May, which will be sending 2,000 workers packing.
In the same vein, recent statistics show that Spain has not fared better as unemployment figure is 27.2 percent for the first quarter of the year 2013. While the Greek case is sovereign debt crisis, Spain’s case is banking crisis. As Matthew Lynn wrote in a 2012 article in marketwatch.com and other international media, in the history of capitalism, there had never been boom and burst in the property market without the banking crisis following suit. He, therefore, made some suggestions to Spain which include enduring a deep recession, allowing the unemployment rate to rise and allowing wages to fall, until competitiveness is back in the country. He offered the suggestions when the Spanish unemployment rate was at 24 percent! Ever since then, Spain has not left the eurozone; neither has Greece, but the Spanish population has dropped as migrant workers who cannot face the unfolding harsh economic realities are beginning to leave.
The Republic of Cyprus is also not immune from the financial crisis as a result of its exposure to the Greek debt crisis. It was reported that Cypriot banks were buying the Greek government bonds and also lending heavily to Greek companies without restraint. Now they are facing the music! But, in an attempt to overcome the heat, they are levying all uninsured deposits in the country to the tune of about 40 percent. Those who saw Cyprus as a safe haven are beginning to challenge their onion!
Financial mavens, though, have argued that the eurozone debt crisis cannot spark another global financial crisis. For instance, when Paul Krugman appeared on “Hard Talk”, a programme of the BBC World Service, in June last year, he dismissed what many analysts believed as an economic problem, saying, “It is a political and intellectual problem and not an economic problem.” He also said that since Greece does not have its own currency, they cannot print the euro. So, they either go along with Germany or they leave the euro. But, expressing a view contrary to what analysts believe about quantitative easing, Krugman said, “The question is: how did we end the Great Depression? We ended the Great Depression by simply spending our ways out it.”
Since export of raw materials to foreign countries is Nigeria’s major source of revenue or hard currencies, looking at the budget sequester in one of our major trading partners, the United States, and what looks like political instability in Venezuela, one of the oil producing nations, following the circumstantial victory of President Nicolas Maduro, how immune is our economy? I don’t want to talk of the sovereign debt crisis in Europe or the change of leadership in China whose new economic policy towards the sub-Saharan Africa is still unclear. Similarly, with the recurrent expenditure gulping about 70 percent of our national budget, can the Internally Generated Revenue (IGR) finance our fiscal spending? Or do we need the Nigerian-style fiscal cliff? For emphasis sake, fiscal cliff deals with the practice of raising tax rates while at the same time decreasing government spending.
Nonetheless, Nigeria is a huge market in Africa; we have the population and the landmass. Hence, it will be nice if African countries should come together to develop their own domestic market and encourage regional trading among themselves, because, according to agoa.gov, sub-Saharan Africa trade accounted for only 1.85 percent of the world trade, yet our economic growth for the first quarter of the year is more than some of our major trading partners. For example, the US only grew by 2.5 percent, whereas Africa’s growth is more than 5 percent, while Nigeria’s growth for the past 5-10 years has been around 7 percent, and is pursuing a double-digit status.
Finally, Nigeria’s economy is strong as the fundamentals are encouraging, but we should also make arrangement for plan B in case of any eventuality.
EDWIN E. UHARA
Uhara is an activist and a public affairs commentator. He is also the National President of Young Nigerians for Change.
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