EU Crisis’ Ripple Effects in Latin America

By Humberto Márquez Reprint | | Print | |En español

CARACAS, Oct 22 2012 (IPS) - The crisis in Europe may provide an opportunity for Latin America and the Caribbean to recast the bi-regional relationship based on higher education and investments with a social and environmental focus, according to the ministerial Council of the Latin American and Caribbean Economic System.

The 38th annual meeting of the Latin American Council, the highest authority of the regional organisation, which is made up of 28 countries, concluded on Oct. 19 in Caracas.

Latin America and the Caribbean “should aim for two key niches: investment in social and environmental sustainability, and closer relations in higher education, science and technology,” Carlos Quenán, the Argentine author of the study of relations with the EU which was the central document for the debate, told IPS.

The Latin American and Caribbean Economic System (SELA), created in 1975 with the aim of economic coordination and cooperation, took advantage of this Council meeting to propose its views on the European crisis in the light of the forthcoming summit between the two regions to be held in January 2013 in Santiago, Chile.

“There is no need for an apocalyptic viewpoint, to say that Europe is in dire straits, nor for Latin America and the Caribbean to become complacent and think that just because they are surviving the global crisis, they do not need help,” said Quenán, the vice president of the French Institut des Amériques.

Another Argentine expert, Roberto Lavagna, a former economy minister (2002-2005), has argued that “the rest of Europe is wrong to try to fulfil the demands of Germany and the International Monetary Fund: the cuts that destroy the population’s buying power are recessive and do not produce fiscal balance.”

Quenán quoted former Spanish prime minister Felipe González (1982-1996) who said “austerity to the bitter end will actually lead to death.”

The anti-crisis measures adopted by Europe are based on “generalised austerity policies that are preventing immediate recovery,” said Quenán.

The Santiago Summit will be the seventh since the bi-regional gatherings began in 1999 in Rio de Janeiro, and the first between the EU and the new Community of Latin American and Caribbean States (CELAC), made up of all the countries in the hemisphere except Canada and the United States.

The study points to a number of factors that played a role in Europe’s current crisis: a single currency, the euro, lacking a lender of last resort, lack of macroeconomic discipline, over-indebtedness, recession, stagnation of productivity and governance problems.

“All the factors affecting the European economy persist, and in the short and medium term growth will be mediocre at best,” Quenán said.

As for Latin America and the Caribbean, the European crisis has affected four major areas of economic activity: investment, trade, remittances and official development assistance (ODA).

Although the EU prides itself on being the leading investor in this region, with an accumulated 312 billion euros (406 billion dollars) to 2009, in the last decade this investment, averaging 30 billion dollars a year, has been extremely volatile.

In compensation, Latin America has been making a positive contribution to balance the books in European headquarters, and has been in recent years the main source of revenue for numerous companies in Spain.

The importance of Europe as a trading partner for Latin America and the Caribbean has declined. In 1990 Europe was the destination of 24.6 percent of Latin American and Caribbean exports, and in 2011 this was reduced to 13.6 percent.

In contrast, China was the 17th destination of Latin American and Caribbean exports 20 years ago, and now is the third, receiving nine percent of the region’s total exports.

Trade remains asymmetric and concentrated: over 90 percent of the European products imported into the region are industrial goods, and half are technological, while 60 percent of Latin American and Caribbean exports to Europe are commodities or manufactured products with very little added value.

Europe’s major Latin American trading partners are just five countries: Argentina, Brazil, Chile, Colombia and Mexico, which account for 75 percent of trade to and from the EU. Meanwhile, five European countries (France, Germany, Italy, Spain and the United Kingdom) import nearly 60 percent of Latin America’s exports.

And this scenario could be accentuated by the crisis, further fuelling the decline of the European economy and the appreciation of Latin American currencies.

Remittances have also fallen. Migrants in Spain, the second largest source of remittances to the region after the United States, sent 9.5 percent less funds to Colombia in 2010 than in 2008, 13 percent less to Ecuador and 16 percent less to Bolivia.

As for official development assistance, the EU goal for ODA of 0.7 percent of GDP by 2015 has been ruled out in practice, since in 2010 it was only 0.42 percent, when it should have reached 0.56 percent.

The SELA-sponsored study proposes intensifying regional cooperation and integration plans and evaluating actions taken since the 2010 summit with the EU, in Madrid, which proposed working together on science, technology, innovation and sustainable development.

Quenán called for making headway in the search for consensus and synergy in the first niche: investments for social and environmental sustainability.

“The EU, for all its difficulties, is the global region that generates the largest number of patents in environmental technology, and Latin America and the Caribbean is a region that needs to preserve its environment as well as exploit its wealth of biodiversity,” he said.

The other niche is higher education, science, technology and innovation. During the presentation of Quenán’s study, José Rivera of Mexico, the permanent secretary of SELA, mentioned that in 2001, the whole of Latin America and the Caribbean applied for 7,800 patents.

At the same time, South Korea alone applied for 177,185.

“Latin America and the Caribbean have widespread higher education, with many universities and students, but quality is a different matter. And in terms of technological innovation, Europe, in spite of its crisis, continues to be a great power, whereas our region has a major deficit to overcome,” Quenán said.

At the Santiago Summit, SELA initiatives will be presented by its new permanent secretary, Roberto Guarnieri of Venezuela, who was elected Oct. 19 to replace Rivera, under whom, since 2008, the organisation produced dozens of studies on cooperation and coordination for regional entities.