How the Eurocrisis laid bare world's new economic order

How the Eurocrisis laid bare world's new economic order

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Before the world financial crisis, these setpiece and usually self-congratulatory summits were still held among the G8 countries – the traditional lineup of the US, Germany, Japan, France, Britain, Canada and Italy, plus Russia, added to the list in 1997 to cement the fact that the post-communist empire had come in from the cold. But even before mis-sold mortgages and reckless bankers triggered arguably the worst global financial crisis in living memory, it had become clear that this group was no longer a fair representation of the world economy.

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This week's meeting of the G20 in Cannes on the French Riviera will highlight the fact that the continent's pre-eminence is a thing of the past.

(Nicolas) Sarkozy's humiliating call to Beijing last week, asking if the Chinese would care to invest in the European financial stability facility, the huge euro bailout fund, was portrayed within China as grovelling. Guido Mantegna, Brazil's finance minister, rapidly issued a statement saying his country had no intention of taking part.

Also projected by 2050 the United States may shout proudly, "Yay! We're number three!" It's not like we didn't all do it to ourselves with financial mis-managment and not paying attention to what was emerging around us. None of the old players are expected to remain as the pre-eminent global economic powers in just a very few short years, while other economically rising nations are to emerge as such. How did this happen, other than by our own financial leaders' greed and sloth?

China's rise from closed communist state to workshop of the 21st-century world accelerated after it joined the World Trade Organisation in December 2001.

With easier access to the west's consumer markets, China ruthlessly pursued an export-led growth model, racking up vast trade surpluses with the US and Europe, and spending much of the money on buying dollars, and other foreign currency denominated assets, to keep the yuan cheap, and its goods competitive.

In the ensuing decade, more economies have joined the list of promising upstarts, including African states such as Nigeria and Egypt, and Asian big beasts such as Indonesia. The credit crunch, which could weigh on economic growth in Europe and the US for several years, will only accelerate the great catch-up.

Ah, but don't discourage. The West is not in such bad shape. If we do things right we should all be winners. According to Richard Snook of PricewaterhouseCoopers,

"This is not a 'decline of the west' story: we're still expecting the European and the US economies to expand by two and a half or three times by 2050," he says.

Lyons agrees. "I don't think the west should be pessimistic," he says. "We need to be realistic about the near-term: the debt and the need to deleverage point to a difficult couple of years. But the west still has the ability to do well."

The West economies can expect to increase their lot by 2½-3 times, this while China and India increase their's by a factor of 7-11 times. That's not so bad is it?

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