Emerging economies

Over the past decade, BRICS countries - Brazil, Russia, India, China and South Africa - have become increasingly important for the global economy.

In terms of gross domestic product they are now among the world's dozen leading economies, collectively accounting for almost 25 percent of global economic output.

It is hardly surprising, then, that in the run-up to the G20 summit in Cannes, the BRICS are becoming more direct in their calls for a solution to the European debt crisis. Another global recession is the last thing they want.

"The contagion effect is already being felt in emerging countries - in terms of stock markets, currency and bond prices - regardless of their individual growth perspectives," Maria Lanzeni, head of the Emerging Markets sector at Deutsche Bank Research told Deutsche Welle.

IMF to the rescue?

In order to stave off the European contagion, emerging economies are trying to redefine the rules by which the International Monetary Fund (IMF) plays the debt game.

There has been talk of BRICS contributing funds to an IMF-run special purpose vehicle (SPV) aimed at preventing the Greek crisis spreading to Italy and Spain, or of the IMF selling special bonds to emerging nations and using the cash raised to buy bonds from debt-ridden states.

Such a strategy would mean BRICS could help European nations without having to buy sovereign bonds directly from them – and without running the risk of making a loss.

But Heribert Dieter, expert for global financial issues at the German Institute for International and Security Affairs (SWP), said the idea is impractical.

"The IMF can and ought to provide liquidity," Dieter told Deutsche Welle, "but the US won't agree to share Greece's debt relief."

He said that rather than helping to advance the current discussion, the move would simply serve to increase the influence of emerging countries at the IMF.

Maria Lanzeni believes the IMF should help bridge the gap during tight times by offering flexible loans to those countries that need them without attaching unnecessary conditions.

"We saw an example of that in 2009 in Mexico, Poland and Colombia, and it could be a model for the future."

China the creditor

China has already offered to come to Europe's rescue. Beijing, which has huge currency reserves, appears genuinely prepared to buy bonds from weak eurozone members on the condition that the IMF or European Central Bank guarantees them.

But Heribert Dieter is skeptical about the implications of the offer: "The Americans have been playing this game for many years. They are dependent on Chinese capital, and I can't imagine that the Europeans would want to be in that position."

In it together

Gerhard Schick, a financial expert and Green Party MP, has been campaigning for more international regulatory measures, such as a general financial transaction tax.

While many European countries support the introduction of such a levy, the US and Britain remain staunchly opposed to the concept.

"Another important point is the regulation of shadow banks – funds and investment vehicles – that also contribute to instability," Schick said.

Ultimately industrialized and emerging nations are all in the same boat. They have to prevent the economy from sliding into another global recession, which means emerging countries' demands for greater efforts to solve the crisis are also in the interests of leading industrial nations.

Author: Daniel Scheschkewitz / tkw
Editor: Sam Edmonds