We are all taught at school about the five, or even the seven, continents. But in business and elsewhere many still think of the world in three groupings, matching the three broad time-zones, or the three big financial centres, of the developed world: Europe, America and Asia. In each there exists an informal hub for the Anglophone, Anglo-Saxon world: in Europe there is Britain, in the Americas, the US. In Asia, largely old-world but arguably the most dynamic and developing of the three areas, it is economically confident and rapidly-expanding Australia.
Last week I was in Sydney and it was fascinating to view our troubled continent from there. While Australia still holds a great affection for Britain (the Royal Wedding was huge), the link pretty much ends at the emotional and historical. Labour Prime Minister – and how tantalising those words sound nowadays – Julia Gillard now presides over an economy which has not known recession since 1991 (not even in the Asian crisis of 1998) and has been protected from the worst of the global financial crisis, largely thanks to an Asia-fuelled boom in demand for its mining output. Its population has doubled in the last half-century and, compared with the UK, jobs are relatively easy to come by, with unemployment currently at around 5%.
The learning point from the comparison? All politics, as Speaker of the House Tip O’Neill once famously observed, is local. Information does not flow as freely across borders as you might think.
First, Australia “gets” the rise of Asia, because it is part of it. In fact, it has spent most of the postwar period aligning itself towards it and away from the British Commonwealth. We in Europe, largely, do not. Yes, we know that China is growing and we must engage. We know we can make things there very cheaply. But we do not, perhaps, recognise just how much and how quickly the geopolitical ball-game is changing because of that. Now, this understanding is not the sole reason for Australia’s success. But its Asian alignment has clearly helped.
Second,the reverse lack of understanding is also true: the euro crisis is probably not being jumped up and down about in Asia simply because its full extent hasn’t yet impinged upon people’s consciousness. “My colleague came back from Europe last week and told me that we just don’t get how big a deal the euro crisis is”, a senior Australian fund manager told me. But this is not good news. Because when other world players really do understand the trouble we’re in, the big hedge funds will really start to move in (Warren Buffett, the sage of Omaha, was quoted on Monday as saying the euro had a “major flaw”). What is disturbing is not that such judgements are being made, but the fact they are coming this late in the day implies that, internationally, people are only just waking up to the crisis.
But neither is it surprising: our own leaders have taken months to recognise the scale of the crisis, and still seem to be dragging their feet as to the solution. Furthermore, the intricacies of European politics and what the EU actually means are lost on many. From the outside, it is easy to think of the EU as what it is not: a United States of Europe with a universal single currency, a uniform set of laws and free movement of labour.
Third, there is an underlying reason why not those outside Europe might not immediately see the gravity of the situation. Much commentary that you read on the euro crisis, because it is the terrain of specialists, is by economic staff. It is the business editor of this publication or the economics guru of that: after all, their readers, businesspeople and financiers, have a great deal to lose from a possible disaster.
Now, it is sometimes comforting to look at the world as economists do, as a set of reliable mathematical equations. But all models are based on a set of assumptions which have to hold; those same economic commentators may not be quite so well versed in the underlying politics of Europe, with its Byzantine structures at EU level and its long history of irrational, emotionally-tinged politics. If you cannot get your head around the foot-dragging by Europe’s leaders, it is easy to assume that it is because the problem is not all that big. This is a dangerous misreading: it is quite that big, and more. Just because from outside you cannot see the economic logic of failing to prevent an entirely preventable slump in the world’s largest trading bloc, does not mean that Europe’s leaders will behave logically and fix it.
What does all this tell us? Well, we could certainly benefit by taking our stare away from our European navels and looking out to the rest of the world, before they truly wake up to the trouble we’re in. Not only could they teach us that the real game is being played out far from Europe and we had better shape up: they would also be unlikely to forgive us easily for dragging them and the rest of the world into recession.