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Recasting the Power Politics of Debt: Structural Power, Hegemonic Stabilisers and Change

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Abstract

The 2007–08 financial crisis exposed and exacerbated the debt pathologies of the West. This paper examines whether the new global debt relations that have been generated by this crisis have transformed global power politics, changing the way in which the global South and the global North interrelate and interact. To do so the paper analyses the G20 advanced and emerging economies, examining a number of key indicators related to debt, indebtedness and financial leverage. This research leads to two main findings. First, the crisis has indeed given rise to new global debt relations. As a result, any reforms in the post-crisis global political economy will take place in an environment that favours the rising powers. Second, the USA maintains its capacity to control the parameters of this new global debt politics and economics, but cannot directly impose the terms of a solution to the existing ‘global/hegemonic imbalances’ on the rising powers.
1
Recasting the Power Politics of Debt:
Structural Power, Hegemonic Stabilisers & Change*
Dr Andreas Antoniades
University of Sussex
UK
Paper presented at:
ISA Annual Convention 2013
San Francisco
Panel: Rising Powers and the Future of Global Governance
Wednesday, April 03
ABSTRACT
The 2007/8 financial crisis exposed and exacerbated the debt pathologies of the
‘West’. The paper examines whether the new global debt relations that have been
generated by this crisis have transformed global power politics, changing the way in
which the ‘global South’ and the ‘global North’ interrelate and interact. To do so the
paper juxtaposes the G20 advanced and emerging economies and examines a number
of key indicators related to debt, indebtedness and financial leverage. This research
leads to two main findings: (i) the crisis has indeed given rise to new global debt
relations. Any reforms, therefore, in the post-crisis global political economy will take
place in an environment that favours the emerging powers (ii) The US maintains its
capacity to control the parameters of this new global debt politics and economics, but
cannot impose a solution to the existing ‘global/hegemonic imbalances’ on the
emerging powers.
*A shorter version of this paper is forthcoming in: Third World Quarterly, 34:2, 2013.
2
The evolving global economic crisis has forcefully shaken the foundations and
parameters of the existing ‘international order’. Whether the present crisis episode is a
manifestation of a broader hegemonic transition process or of a milder re-balancing
act with no hegemonic implications, remains to be seen. Put differently, only time will
tell whether the current crisis will function as a ‘pressure valve release’ for the benefit
of the existing order or as a catalyst for a different world order. In any case, the
impact of the crisis on the existing world order is inexorably related to the way in
which the social agents and the social collectivities involved in these social
fermentations will respond to and handle this crisis and the challenges, opportunities
and threats generated by it. Thus, we do not know the end of the story not because we
do not have access to a script already written (divinely or by structural imperatives)
but because it is impossible to predetermine the behavior and actions of the actors
involved (much more so because they themselves seem not to know what to do).
Unlike theatre, here, the actors write the script and have the final word on how the act
will end (albeit not in conditions of their own choosing)!
Hence, the International Relations analysts are back to the drawing board to examine
the actual and potential geopolitical, geoeconomic and geo-cultural implications of
the current economic crisis and its repercussions. Contributing to this aim, this article
aspires to assess the way in which debt operates as an instrument of power
(instrumental and structural) in the context of hegemonic rivalry in the current
historical juncture. The paper attempts to assess the impact of the current ‘global
relations of debt’ on the US hegemony and through it to the current global hegemonic
order that is based on the primacy of the West. In this attempt, our main concern is
not with debt as an economic phenomenon that can be modeled and analysed in
separation to (international) socio-political relations and power, but with debt as a
socio-political relation and power
1
. Along these lines our main interest is to examine
the way in which debt impacts on current great power politics. Our key question is
whether the current global relations of debt have transformed the way in which great
power politics materialise in the global political economy.
The View Ex Ante: Reversed Keynesianism and Financial Engineering
In a paradoxical way, the global economic crisis that started with the collapse of the
subprime-market in the US, in 2007, gave an answer to the pre-crisis ‘million-dollar
question’: ‘who owns the debt’. Before the break out of the crisis, the new ‘originate
and distribute’ banking model, assisted by SPVs, financial innovation and soft-touch
regulation seemed to have achieved the impossible! It had generated so many
‘security layers’ (see ‘securitised’) through which risk was spread so widely and
thinly that in reality it had ‘vanished’. Magic(al) indeed (akin to Zenon’s paradox on
motion)! Furthermore, the countries where this pure magic ruled were the countries
that demonstrated strong and sustained economic growth rates. The success of this
economic model was undeniable and all other capitalist models faced a huge
3
challenge: to imitate-converge with this model or be trapped in sluggish growth rates,
high unemployment, and high deficits.
Of course, the rising level of private, especially household, debt in these economies
was a matter of concern. But the argument went that to grasp this phenomenon one
should come to terms with a ‘new political economy of credit’; i.e. the different way
in which contemporary economies functioned. A number of arguments were raised in
this regard. Excessive ‘plastic money’ may indeed be a liability and a threat to the
economic system. Yet, what was happening in these economies was that ‘plastic
money’ was translated in real growth rates. Put differently, plastic money increased
consumption that in turn generated production and growth rates that led to increased
employment, which, with new ‘real money’, boosted production and the real
economy. Thus, what started as ‘virtual and plastic’ ended up as ‘real and productive’.
Plastic money was translated into new employment, production and growth. This, of
course, made perfect Keynesian sense too. Yet, this time the role of the ‘booster’ was
not played by the state but by the market, which of course (the argument goes) is
much better positioned to play such a role (gather credit information, assess risk etc.).
Consequently, it was not ‘public’ but ‘private’ debt that was accumulated for the
purposes of the ‘Keynesian operation. But, again, considering the troubling historical
record of state in (mal)managing public debt, this might be good news and represent a
safer, lower risk mutation of the traditional centralised Keynesian model. Thus, the
new political economy of credit was nothing more than a new ‘reversed Keynesian’
model; a ‘new Keynesianism’ for a globalised neoliberal world
2
.
Another issue of concern in this new economic environment was the low and
decreasing household saving rates, and the overall degree of household leverage (a
by-product of the accumulated private debt in the ‘reversed Keynesianism’). The
counterargument with regard to saving rates was the following. The data on low
household saving rates did not reflect accurately the saving position of households,
because they did not include the households’ ‘largest investment in the future’, i.e.
property in the form of mortgagea solid asset with historically rising value. For
instance, in the US, mortgages corresponded approximately to 70% of private debt
over the last decade
3
. If this asset was taken into consideration in the calculation of
saving rates, then the Anglo-Saxon economies and households were not different in
comparison to those in other economies in Europe and beyond. The same logic
applied for the Anglo-Saxon households’ overall leverage. Their borrowing had
increased significantly since 1990. In the US, for instance, household debt rose by
more than half, reaching 98% of GDP in 2008, whereas in the UK it was doubled
from 51% in 1990 to 103% of GDP in 2008
4
. Yet, taking into consideration that most
of this borrowing represented home mortgages, as well as the fact that house prices
kept rising throughout the pre-crisis period, then household leverage, accounted in
term of the the ratio of household debt to household assets, appeared low and stable
no cause for alarm for public authorities. Yet, if household leverage was counted in
terms not of assets but of disposable income, then the degree of households leverage
should have alerted public authorities well before the 2007 subprime market collapse
5
.
4
This collapse gave an answer to the question of ‘who owns the debt’ of the reversed
Keynesian period, or more accurately, who would pay for it. When the magic
disappeared (as magic does) and the ‘security layers’ started to fall apart like playing
cards, public authorities stepped in. The Lehman Brothers episode was the crossing-
the-Rubicon point in this regard. In a spectacular move, the collapsing Western
financial system was de facto ‘nationalised’ and trillions of virtual dollars that were
recycled through its complicated infrastructure were turned into public liabilities.
From that point onwards, the Western economic system has seemed like a gigantic
half-empty balloon, which, despite the mounting levels of air (i.e. money) thrown into
it, does not seem able to recover. The rest of the world watched the developments in
the West with shock and awe.
Distinctive elements of the current debt crisis
Crises such as the current one are not unknown or unprecedented in world economic
history. Rather the opposite. The current crisis seems to be just one more episode in
the way in which the modern capitalist system has evolved, at least since the
beginning of the 17th century and the infamous tulip-crisis in Holland
6
. Yet, despite
the striking similarities among all past capitalist crises, these crises differ in their
geopolitical and geoeconomic implications. To assess the latter, one needs not only to
be aware of the structural/systemic causes of these recurrent crisis episodes, but also
of what is distinctive about each crisis and how these distinctive elements matter and
operate in each unique histrorical juncture. Beyond the uniqueness of the broader
historical context, what Barry Gills refers to as the ‘triple conjuncture’
financial/capitalist crisis, hegemonic transition crisis, environmental crisis
7
the
current crisis is also unique in a number of ways that relate to global debt relations
and dynamics.
The pattern of the global distribution of deficits and surpluses (what is usually
referred to as ‘global imbalances’) is a key issue here. Although the crisis led to an
increase in debt levels almost everywhere, the main ‘victims’ in terms of mounting
debt levels have been the advanced economies. The public debt to GDP ratio in the
Group of 20 (G20) advanced economies from 64% in 2006 is expected to approach
110% in 2013. It is projected to maintain this upward route at least until 2015. The
respective figure for the emerging G20 economies in 2009 stood at 38% (having
fallen from its post-Asian crisis historical high of 71%)
8
. As Reinhart and Rogoff
note, from the 20th century onwards, the only time in history in which the advanced
economies registered higher public debt levels was in the mid-1940s, when they were
absorbing the impact of World War II
9
. Further, if we add household and corporate
debt to public debt, the debt levels of the advanced economies is even higher in
historical terms, approaching on average the 315% of their GDP (see below)
10
. And
these historically high debt levels are combined with interest rates that are at a 200
year low
11
! In this context, the ever-deepening sovereign debt crisis in Europe
threatens the very existence of the Euro and the Eurozone, if not the European project
as a whole.
5
The other side of this rising indebtedness of the advanced economies is the direction
of the current account imbalances. In the current financial crisis, net savings/surpluses
are not moving from ‘advanced’ to ‘emerging’ economies (as under the ‘gold
standard’ and in the 1990s), or from ‘advanced’ to ‘advanced’ economies (as in the
financial crises of the 1980s), or from ‘emerging’ to ‘emerging’ economies (as in the
1970s). For the first time in modern economic history, surpluses are moving from
‘emerging’ to ‘advanced’ economies, i.e. the ‘periphery’ bails out the ‘centre’
12
. In
this sense, any reforms in the world economy triggered by the crisis, take place in a
context of global current account imbalances that favour the emerging economies.
Furthermore, these imbalances are at a historical high as a percentage of world GDP
(close to 6% at the end of the 2000s), a fact that strengthens further the position of
emerging economies in the current conjuncture
13
. The pattern of distribution of
surpluses and deficits comes to strengthen this view. The degree of concentration of
deficits in a single country, the US, is historically unprecedented. In 2008, the US
current account deficit accounted for the 75% of world current account deficits or put
differently, the US absorbed approximately 75% of world net savings. At the same
time, the high number of countries with large current account surpluses (above 9% of
GDP) is also striking in historical terms. In 1985 only three countries accounted for
50% of world surpluses, and they were all advanced (Japan, Germany and the
Netherlands), whereas in 2005 there were five including representatives from the
BRICs and oil-producing countries (Japan, China, Germany, Saudi Arabia and
Russia)
14
.
Another element that clearly differentiates the current crisis from past ones is the level
of financial integration in the world economy. The contemporary global economy is
characterised both by an unprecedented level of capital market integration, an
unprecedented level of financialisation, and an unprecedented penetration of
finacialisation techniques in peoples’ everyday lives. These phenomena have not only
created a crisis-prone international economic system, but have also penetrated and
destabilised national and international commodity and food markets, endangering the
livelihood of real people around the world
15
. Critical to all these processes has been
the generation of debt (private, corporate, financial sector, or government). Thus, for
instance, a technology such as securitisation that was originally developed to reduce
risk and benefit people, producers, and the real economy, was transformed into a
speculation device, with a great capacity to generate downward, ‘globally
synchronised’ economic spirals
16
. The composition of generated debt in the current
episode diverts from past episodes too. In the current crisis, the leverage of the non-
financial corporate sector either did not increase significantly or in some cases
decreased. The amount of household debt rose to levels never seen in the past,
exemplifying the deep integration of individuals and households in the
financialisation structures of global capital. Yet, the sharpest increase in debt was
registered by financial corporations (followed by households)
17
. The cases of Iceland
and Ireland are exceptional but indicative. In Iceland, the financial sector debt reached
580% of the country’s GDP in 2008, pushing the total debt to GDP ratio to the
astronomical 1.189%. The respective financial sector debt in Ireland, in 2008, was
421% of the country’s GDP, whereas the total debt to GDP ratio in the country the
same year was 700%
18
.
6
The West under the Debt Microscope: Total Debt and Debt Thresholds
Most of the attention in the current crisis has been paid to the level of the public debt
and to a lesser extent to the debt of the financial sector. Indeed, the figure that (at least
traditionally) really matters for most multilateral economic institutions is that of the
level of public debt
19
. Yet, focusing on the latter and without accounting for private
debt, one lacks an accurate picture not only of how leveraged an economy is (and thus
how fragile its economic situation is and how difficult the deleveraging phase will
be), but also of the real degree of indebtedness of an economy and its people.
Especially so, that, as we mentioned above, one of the distinctive characteristics of the
current crisis episode is the high levels of household indebtedness. Therefore, in
comparison to ‘public debt’, a more appropriate figure to capture real levels of
national indebtedness is the ‘total debt’ that consists of both the public and private
debt (private debt includes households, the corporate non-financial sector and the
financial sector).
In the beginning of 2011, the ranking of advanced G20 economies in terms of total
debt to GDP ratio was the following: Japan (512%), the UK (507%), (363%), France
(346%), South Korea (314%), Italy (314%) and the US (279%), Germany (278%),
Australia (277%) and Canada (276%), while the advanced economy average was
339%. The contrast with the BRIC’s total debt is striking. In 2008, China’s total debt
to GDP stood in 2008 at 159%, Brazil’s at 142%, India’s at 129% and Russia’s at
71%
20
. Yet, it has to be noted that the debt and leverage capacity of emerging and
advanced economies is different
21
.
Furthermore, the level of each of the different debt types of which total debt consists
exercises an independent effect on economic performance and overall debt
sustainability. The fact that, Greece’s total debt to GDP ratio in 2011 was just 267% is
indicative of this (but also of how misplaced a simplified moral discourse on nations’
indebtedness can be). Thus, different advanced economies are implicated in different
debt equations and face different debt problems. The key issue here is above what
limit debt ceases to be a force for economic development and becomes a drag on
growth, for each of the different debt types mentioned above (household, corporate
sector, financial sector, government). In terms of advanced economies public debt,
Reinhart and Rogoff
22
have suggested that such a ‘drag threshold’ is around 90%,
Cecchetti et al
23
have suggested 85%, Caner et al.
24
put it closer to 77%, and
Elmeskov and Sutherland
25
at 70%. The Stability and Growth Pact of the European
Union requires its member to keep their public debt below 60% and the OECD
26
recommends that advanced economies should aim for 50%
27
. The literature is less
clear with regard to ‘drag thresholds’ for the private debt. The recent scoreboard
adopted by the European Union for monitoring macroeconomic imbalances put the
threshold for private debt (corporate, households) at 160% of GDP. Cecchetti et al
suggest 90% of GDP for corporate debt, and 85% for households. Regardless of the
exact numbers, most analysts agree that the economies should aim much lower than
the thresholds levels, so as to be ready to face adverse economic conditions and crises
(i.e. the rainy days)
28
. Table 1 demonstrates the diversity of debt problems within the
group of advanced G20 economies. An in-depth analysis of this diversity is beyond
7
our purposes here. Yet it is indicative that all G20 advanced economies have crossed
at least one debt threshold, whilst the UK, Japan and France are above the maximum
threshold in three out of four categories.
Table 1. Varieties of Debt and Thresholds of Debt Sustainability: the Case of
Advanced G20 Economies (Q2, 2011)
Public Debt
Threshold Range*:
60 - 90% of GDP
Household Debt
Threshold Range*:
80 - 85% of GDP
Corporate Debt
Threshold Range*:
80 - 90% of GDP
Financial Sector
Debt
Threshold^: 82%
Japan
226
Australia
Spain
134
UK
219
Italy
111
UK
France
111
Japan
120
France
90
Canada
UK
109
France
97
Germany
83
USA
S. Korea
107
S. Korea
93
UK
81
Spain
Japan
99
Australia
91
USA
80
S. Korea
Italy
82
Germany
87
Spain
71
Japan
USA
72
Italy
76
Canada
69
Germany
Australia
59
Spain
76
S. Korea
33
France
Canada
53
Canada
63
Australia
21
Italy
Germany
49
USA
40
Note: Cells in blue demonstrate value above the maximum threshold, whereas grey cells demonstrate value above
the minimum threshold, as suggested in the literature. The table is based on data presented in Roxburg et al, 2012
(citing ‘Haver Analytics, national central banks, McKinsey Global Institute). *Threshold range is based on
respective literature (see above in this article). ^Average of advanced G20 economies, excluding the UK.
The last issue we should address here has to do with the potential duration of the crisis
and its negative repercussions on the advanced economies. Based on the analysis of
past debt crises, Reinhart and Rogoff estimate that debt reduction and deleveraging
takes on average about seven years. Consequently, they suggest that ‘the ten years
from 2008 to 2017 will be aptly described as a decade of debt’
29
. A similar conclusion
is reached also by Roxburgh et al
30
. Analysing 32 past debt/deleveraging episodes
they found that the most common policy reaction to these crises was austerity policies
and that the deleveraging process lasted on average six to seven years, growth was
sluggish and/or negative for a period of two to five years, and on average the debt to
GDP ratio declined by around 25%
31
.
Yet, the distinctive elements of the current debt crisis may prolong and complicate the
debt reduction and deleveraging process. Most past deleveraging episodes were
significantly supported by an increase in net exports that helped boosting growth rates
in deficit economies
32
. Yet, currently it is highly unlikely that all deficit and highly-
leveraged states can increase their exports simultaneously. If they try to do so, then a
serious negative impact on international development, poverty, and the environment is
almost certain, along with increasing trade frictions between export-oriented emerging
powers and advanced economies
33
.
8
Another significant factor that distinguishes the current crisis from past ones is the
narrow state ‘policy margin’ owing to the size of public debt. Partly as a result of the
aforementioned contraction in GDP and partly due to states’ effort to mitigate the
negative impact of the crisis on the population, public debt is expected to rise for
several years after the break out of a financial crisis. In past crises, this rise was on
average 75% of the GDP
34
though pre-crisis public debt levels were much lower in
comparison to the current crisis and thus the after-crisis public debt explosion was
easier to handle. This time the crisis broke-out at a time when the levels of public debt
in advanced economies were already excessively high. This means that the states
capacity to mitigate the social and economic impact of the crisis is much more
constrained, and thus, the impact of the crisis on the social fabric may be
uncontrollable
35
.
Thus, policy responses in the current episode take place in a rather uncharted
environment
36
. Furthermore, the size of the sovereign debt market and the billions that
advanced economies request from private capital markets each quarter to refinance
their debt along with the sovereign default overtones of the current crisis especially in
Europe have produced an explosive mix that act as a destabilising multiplier for the
global economy and the societies involved. We thus see the transformation of an
accident-prone to an accident-producing global economic system. Even if the worst is
avoided (e.g. collapse of the Eurozone, uncontrollable social unrest, disintegration of
the international trade regime, competitive devaluations etc.), the need to reduce
public debt and return to sustainable public finance will force Western states to low
growth rates in years to come.
Last but not least, demographics should also be mentioned as an important negative
contingent factor in the process of debt reduction and deleveraging in the West. The
population ageing that is observed in many advanced economies constitutes a
challenge for public finance for it increases public expenditures and reduces public
revenues, producing at the same time serious challenges for national pension systems.
Thus, it makes debt reduction more difficult and fiscal sustainability more
unpredictable
37
.
Debt as External Dependency
A critical destabilising factor in the global politics of debt is whether public and total
debt is external or internal
38
. Put differently, whether the government [and the private
sector] (re)financing their debt through internal or external borrowing
39
. A high
percentage of external debt in an economy implies more dependency to its external
debtors (official & private sector) as well as higher vulnerability to adverse changes in
the external economic environment
40
. This vulnerability increases because most of the
times external debt is denominated in a foreign currency whose interest rates policy is
not controlled by the debtor state. External debt was crucial, for instance, in the debt
crises in Latin America in the 1980s, in East Asia in the 1990s, and in the recent
Greek debt crisis
41
.
9
Table 2 demonstrates differences in the composition of total external debt at a
regional level, a year after the break out of the international financial crisis. We see
that Latin America has a much more balanced distribution of its external debt in
comparison to Asia and especially Europe, where the external debt is concentrated in
the banking sector.
Table 2. Composition of External Debt in Selected World Regions
% of Total External Debt
General
Government1
Banks
Direct
Investment
intercompany
debt
Other Sectors2
Latin America
35
16
10
39
Asia
21
45
6
28
Europe
15
54
9
22
1Includes monetary authorities; 2 Includes: nonbank financial corporations, nonfinancial corporations, households,
not profit institutions serving households
Table 3a shows the levels of external debt in the G20 economies. In the beginning of
2012, the external debt to GDP average for the ten advanced economies is 118%
(95% excluding the UK), whereas the respective ratio for the ten emerging economies
is 24.4%
42
. The difference in the external indebtedness between the two groups is
striking. The percentage of short term external debt of most G20 advanced economies
is also striking. Short term external debt multiplies the exposure and vulnerability of
externally indebted economies. In this regard, the UK and Eurozone member-states
43
(excluding Italy) appear highly exposed (even after accounting for the UK’s role as a
global financial centre). Yet, along with the size and length of maturity, the currency
composition of external debt and the size of net interest payments are also key factors
for assessing the degree of external dependency/vulnerability (see also below)
44
.
10
Table 3. External Debt, Short Term External Debt and Net International
Investment Position in the G20 Economies
Table 3a. External Debt Indicators
External debt as % of GDP
2012, Q1
Short
Term
external
debt
China^
5
63.3
Argentina*
7,6
2.2
Saudi Arabia?
19
Na
India*
18.2
4.2
Brazil*
17.4
1.7
Mexico
26.4
5.1
South Africa
29.2
5.4
Indonesia
26.6
4.4
Russia
27.7
3.7
South Korea*
34.9
11.9
Turkey
43
12.2
Japan
52.9
39.5
Canada
68.6
22.3
Australia
87.8
22.4
United States
100.2
43.1
Euro Area*
120.0
Na
Italy
119.6
38.2
Germany*
159.4
53.7
Spain
166.5
60.9
France*
191.7
72.0
United Kingdom
418.7
297.9
^ Data for 2010. Source WB, author’s
calculation. * Data for 2011, Q4
Table 3b. Net International Investment Position
Net International Investment Position,
% GDP
2011
Japan
+54.0
Germany
+35.6
China1
+23.7
Argentina*
+12.7
Saudi Arabia*
+107.3
Russia*2
+1.0
Spain
-92.5
Australia*
-57.8
Turkey
-47.7
Indonesia*
-40.4
Brazil
-33.3
Mexico
-32.6
Italy
-22.3
South Africa*
-17.5
United States*
-17.0
France
-16.5
United Kingdom
-14.1
India*
-13.0
Euro Area
-12.7
Canada
-12.5
South Korea
-9.0
*data for 2010. 1Excluding Hong Kong
(which is +287.7). 2From +7.9 the previous
year.
Source: IMF Statistics (unless otherwise indicated)
Yet, the external debt indicator accounts only for the non-equity state liabilities (it
does not for instance account for FDI or portfolio equity) and therefore it offers us
only partial information about the external economic position and dependency of a
country, i.e. whether a country is a net debtor or creditor. To have a complete picture
of an economy’s balance sheet of external financial assets and liabilities, i.e. to
examine whether a state is a net global creditor or debtor, we need to examine its net
international investment position (NIIP). Table 3b focuses on this and presents the
NIIP for the G20 economies. Interestingly, only six G20 economies had positive net
foreign asset positions (i.e. they were global creditors) in 2011. These included four
emerging economies, Saudi Arabia, China, Argentina, and Russia, and two advanced
economies, Japan and Germany. All other fourteen G20 economies were net global
debtor. Furthermore, the most unsustainable NIIP (in terms of net foreign liabilities as
11
a percentage of GDP) were held by Spain (-92.5%) and Australia (-57.8%), followed
by Turkey (-47.7), Indonesia (-40.4%), Brazil (-33.3%) and Mexico (-32.6%).
Notable is also the fact that the net international investment position of the US is
much better in comparison to its position in the world current account balance (i.e. the
picture emerging from ‘global imbalances’). This concurs with that earlier findings of
Bracke et al, for 2005, that the US ‘accounts for a much smaller portion of world net
foreign liabilities (around 37%) than its share of world net current account deficits
(75%)’
45
. Yet, the difference between the G20 advanced and emerging economies as
distinctive groups remains. In 2011, the advanced G20 economies as a group had a
negative NIIP of $1,6 trillion whereas the emerging G20 economies as a group had a
positive NIIP of about $342 billion.
If we translate the above data in absolute numbers in dollars, then the list of largest
global debtors and creditors in 2011 is as follows:
Table 4. Largest Global Debtors and Creditors: G20 & other Selected Countries
US Dollar in million, based on NIIP
2011
Global Debtors
Global Creditors
1
USA*
-2.470.989,15
1
Japan
3.255.436,81
2
Euro Area
-1.543.097,33
2
China
1.774.746,18
3
Spain
-1.284.088,67
3
Germany**
1.335.494,48
4
Brazil**
-818.026,37
4
Switzerland
937.081,93
5
Australia*
-794.884,42
5
Hong Kong (P.R.C.)
702.696,41
6
Italy
-455.831,54
6
Singapore*
528.836,58
7
France
-426.382,65
7
Saudi Arabia*
483.568,88
8
Mexico**
-401.990,68
8
Netherlands
282.975,18
9
Turkey
-381.053,75
9
Argentina*
46.201,21
10
UK
-327.646,82
10
Russia*
15.684,76
11
Indonesia*
-289.265,47
12
India*
-223.047,78
13
Canada
-209.683,54
14
Korea**
-126.773,18
15
South Africa*
-70.399,83
*Data for 2010; **Data for 2012/Q1
Source: IMF Statistics
It is important, however, to note here that a positive NIIP does not necessarily imply a
declining external debt. A country may accumulate foreign assets through current
account surpluses, thus building a positive NIIP, but may remain a net debtor in terms
of its debt stock
46
. Indeed, overall, in 2010 the external debt of G20 emerging
economies rose by $340.7 billion, representing 68.8% of the combined stock of all
emerging countries’ external debt
47
. Yet, this does not seem to significantly affect the
solid global economic standing of the G20 emerging economies.
12
Table 5 demonstrates that, in 2010, the stock of the BRIC’s external debt remained
moderate, on average at 17.5% of their gross national income (the respective figure
for all developing countries was 21%). The same year, the BRIC’s short term debt
was a 28% of their overall external debt (although this figure comes down to 21% if
we exclude China). The risks and vulnerabilities, however, that are associated with
this rather high short-term external debt were significantly mitigated by the BRIC’s
international reserves, which on average stood at 210.6% of their overall external debt
stock (103.8% if we exclude China’s 531.2%) (see Table 5). At the same time, in
2010 international capital flows to developing countries increased by 68%, in
comparison to 2009, thus returning to their pre-crisis 2007 levels. A significant part of
this increase concerned debt related inflows (both short term related to trade, and
public and private bond issuance), which were increased by 200% in comparison to
2009
48
. The increase in FDI (27%) and portfolio flows (17%) was more moderate.
These data indicate that ‘global capital markets’ look at emerging markets as a safe
investment alternative to the embroiled European financial markets.
Table 5: Net Debt Inflows in Selected G20 Emerging Economies
US dollar in billions (unless otherwise indicated)
Net debt
inflows
2009
Net debt
inflows
2010
Short
term to
external
debt stock
(%)
External
debt
stocks to
exports
(%)
External
debt
stocks
to GNI
(%)
Reserves
to external
debt
stocks
(%)
China
43,5
120,9
63,4
28,9
9,3
531,2
Russia
-19,1
14,0
10,1
79,8
26,9
124,6
Brazil
30,4
78,5
18,9
143,9
16,9
83,2
India
18,4
38,6
19,4
80,9
16,9
103,5
Turkey
-13,8
27,7
26,6
184,0
40,4
29,3
Mexico
8,9
29,4
19,5
62,7
19,5
60,3
Indonesia
14,6
14,5
17,5
101,3
26,1
53,7
Argentina
-2,3
17,1
27,4
152,1
36,1
40,8
South Africa
-2,5
2,1
27,2
43,3
12,7
97
BRIC
(average)
18,3
63
28
83,4
17,5
210,6
Developing
countries
(average)
-
495
25
69
21
137
Source: Author’s compilation of data from World Bank, 2012
Our analysis up to now seems not only to uphold the argument of a new debt politics
in the international system, but also to indicate that the emerging powers have a solid
standing in the new global debt dynamics that increases their policy options, space for
maneuver and ability to advocate and defend their interests in the global economy. In
some sense, however, the terrain in which debt politics takes place remains a Western
one. The next section focuses structural/hegemonic ‘rents’ that the West, especially
the US, is able to extract in the current international system, and assess their impact
on the global politics of debt.
13
Exorbitant Privileges and Hegemonic Stabilisers
To assess the real degree of dependency and vulnerability of the largest global debtors
to adverse external economic conditions, we need to account for the currency
composition of their external debt liabilities. The larger percentage of debt liabilities
denominated in foreign currencies, the larger the risks involved and the greater the
possibilities for negative external shocks. Table 6 demonstrates that the US (and the
major European countries) in essence borrow in their own currency. Between 80-90%
of the US external debt is denominated in US dollars. The respective figure, on
average, for the public debt of the largest Eurozone member states is 98.7%, and for
the UK 100%. On the contrary, the emerging powers’ public debt is overwhelmingly
denominated in foreign currencies. In particular, the average for the G20 emerging
economies included in Table 6 is 97.6%, which is about the same with the BRIC
average (97.4%), whereas the developing states average is slightly smaller at 92.5%
49
.
Thus, not only is the external debt of the major G20 advanced economies shielded by
exchange rates and interest rates fluctuations, but they also control the currency
(exchange rate, interest rates, quantity) in which the overwhelming majority of all
other states borrow
50
.
Of course, this applies primarily for the US. Having a significant part of its foreign
liabilities denominated, and therefore due and repayable, in its own currency, the US,
in theory and in practice, can ‘export’ US inflation (i.e. print dollars) and
‘import’/‘acquire’ products, services and foreign assets. This renders a US balance of
payment crisis almost impossible: an exorbitant privilege indeed! But it is also more
than that. It gives to the US the equivalent of the ‘red button’ in the nuclear balance of
terror of the Cold War period. Access to the ‘red button’ allowed the US (and the
USSR) to negotiate/set/control the parameters of the Cold War conflict. Respectively,
the dollar allows the US to be at the centre and control the dynamics and the
parameters of global debt politics. Considering, moreover, the currency composition
of the emerging powers’ external debt, the US will continue to exercise this privilege
in the foreseeable future.
Paradoxically, the current global crisis, if anything, strengthened further the
international role of the dollar. The currency of the largest debtor of the world
emerged as the only ‘safe heaven’, in investment terms, in the international economic
system. The Eurozone debt crisis and the constitutionally constrained role of the ECB
contributed significantly to this development. Indeed whereas before the European
debt crisis most investors used the Euro to diversify their dollar dominated portfolia,
after the European crisis there has been a clear move away from Euro and either back
to the dollar (in most regions) or towards the yen (especially in East Asia and the
Pacific)
51
.
14
Table 6. Currency composition of PPG debt*
2010 (unless otherwise indicated)
percent of PPG debt (unless otherwise indicated)
Debt Denominated
in Foreign
Currency3
(%)
The three more important
currencies in which PPG debt is
denominated( excluding SDR)
(%)
USA1
7,9
na
Germany2
2,4
na
France2
3,1
na
Italy2
0,2
na
Spain2
1
na
UK2
0
na
Russia
98,7
$: 94,5 / €: 3,5 / ¥: 0,4
India
95,5
$: 71,4 / €: 3,7 / ¥: 19
Brazil
97,2
$: 86,0 / €: 6,1 / ¥: 5,0
China
98,2
$: 84,0 / €: 6,9 / ¥: 7,3
Indonesia
95,6
$: 51,8 / €: 8,0 / ¥: 34,7
Mexico
100
$: 85,8 / €: 6,4 / ¥: 6,1
Turkey
99,6
$: 63,8 / €: 31,1 / ¥: 4,5
S. Africa
95,8
$: 80,4 / €: 15,4 / ¥: 0,0
All developing
countries
92,5
$: 69,4 / €: 12,7 / ¥: 10,4
East Asia & Pacific
94,0
$: 62,8 / €: 5,7 / ¥: 25,5
Europe & Central Asia
97,5
$: 73,1 / €: 21,5 / ¥: 2,9
Latin America &
Caribbean
97,8
$: 84,5 / €: 8,9 / ¥: 4,4
Middle East &
North Africa
81,8
$: 42,5 / €: 30,5 / ¥: 8,8
South Asia
71,3
$: 60,4 / €: 4,9 / ¥: 6,0
Sub-Saharan Africa
74,4
$: 56,8 / €: 15,1 / ¥: 2,3
Source: WB, unless otherwise indicated. *The PPG debt is the external long-term public and publicly-
guaranteed debt. 1Gross External Debt on 30/06/2012. Source: US Treasury. The Table does not
include a 12.1% of external debt which is declared by the US Treasury as ‘unknown’ in its composition
and which refers to ‘direct investments’, ‘other debt liabilities’ and a portion of ‘loans to other sectors’.
2 General government debt at the end of 2011. Source: ECB. 3Author’s calculation based on WB’s
currency composition data.
The above exorbitant privilege and hegemonic role of the US arm the country with
further structural side-advantages in the changing global debt politics. That is, the US,
due to its structural position in the global economy, is able to extract side (valuation)
rents/benefits that affect positively its foreign assets/wealth and thus its net
international investment position. Although the discussion on what causes these
benefits and how they are materialised is still open
52
, no one disputes their existence.
The rest of this section focuses on this issue.
The Current Account (CA) measures annual changes (flows) in the NIIP (stock) of a
country. Thus, ceteris paribus, annual changes in the national CA balance equal
annual changes in the national NIIP. A deficit in the annual CA demonstrates a
country that needs to borrow from abroad and the amount of this borrowing
corresponds to the amount of deterioration in the NIIP of a country at the given
15
period. A surplus in the annual CA demonstrates a country that lends money abroad
and corresponds to the amelioration in the country’s annual NIIP. In practice, these
two figures (CA & annual change in NIIP) are rarely the same, and this is due to what
is referred to as ‘valuation changes’. That means that regardless of any newly
acquired foreign assets or claimed liabilities (e.g. FDI, portfolio investments) that are
reflected in the annual CA, the value of the existing assets and liabilities (the stock
that the NIIP represents) may change. Thus, in practice annual changes in NIIP equal
annual changes in the CA (flows) plus changes in the valuation of existing assets and
liabilities (stocks) (e.g. due to inflation or exchange rates changes; see below). When
this valuation effect is negative, a country may run a CA surplus in a given year,
without this being translated into a corresponding annual improvement in its NIIP.
This happens because its CA surpluses are counterbalanced by a decrease in the value
of its foreign assets over the same year in which it run the CA surpluses. The opposite
is also possible. A country may run a CA deficit without this being translated in an
equivalent deterioration of its annual NIIP, because its foreign assets may have been
appreciated over the same period of time. This is exactly what has been happening in
the US after the beginnings of the 2000s, when its CA balance started to deteriorate at
a fast pace.
In particular, although the US runs CA deficits above 4% of its GDP throughout the
period 2002-2007, reaching the record high 6.1% of GDP in 2005 and 2006, the US’s
NIIP over the same period registered a minor increase. As Schmitt-Grohe and Uribe
calculate, during the period 2002-2007, the US registered
‘a cumulative deficit of 3.9 trillion dollars, or 32 percent of GDP.
Nevertheless, the net international investment position increased by
0.08 trillion dollars...a huge discrepancy of almost $4 trillion between
the accumulated current account balances and the change in the
NIIPWithout this lucky strike, the U.S. net foreign asset position in
2007 would have been an external debt of about 43 percent of GDP
instead of the actual 13 percent’
53
.
Along similar lines, Cline has estimated that during 2002-2004, ‘seven-eighths of the
US imbalance in current transactions with the rest of the world…was in effect
obtained for free because of huge favorable asset valuation changes’
54
. For the period
1991-2004, Cline estimates that the valuation benefits for the US NIIP in absolute
terms reached the $1.26 trillion mark
55
.
The valuation impact of the financial crisis that followed the subprime crisis is
equally telling with regards to the nature of global debt relations. After having
registered a significant increase in its NIIP (3% of GDP) in 2007 (while the same year
its CA deficit was above 5% of GDP), in 2008 the US experienced a spectacular
decrease in its NIIP of 13.7% of its GDP (combined with a CA deficits of 4.7% of
GDP). More interesting, however, this negative shock was followed the subsequent
year (2009) by the largest annual increase of its NIIP (above 10.6% of its GDP), at
least since 1979, combined with a CA deficit of -2.7% of GDP
56
. The gap between
CA (approx. -3%) and NIIP (close to -0.5%) remained significantly positive for the
US in 2010. Thus, valuation changes in 2008-2010 far overshadowed the negative
impact of CA deficits on the US NIIP
57
.
16
It is more than evident from the above data that the US has demonstrated a unique
capacity to reduce the negative impact that persistent Current Accounts deficits have
on the international position and economic sustainability of any country. As Cline
argues ‘what the US NIIP loses from annual current account deficits, it has tended to
gain back at least partially through valuation effects…[T]he US could be said to have
been able to devalue away a significant part of its external debt’
58
. To describe this
phenomenon researchers have used expressions such as ‘borrowing without debt’
59
,
‘debt without pain’ or ‘free debt’
60
. Yet, most analysts agree that this position is not
sustainable in the medium/long term.
According to official US Bureau of Economic Analysis data these valuation effects
take place through three distinctive channels
61
: Exchange rate valuation. While the
great majority (almost entirety) of US foreign liabilities are denominated in US
dollars, the great majority of the US foreign assets are denominated in foreign
national currencies
62
. Therefore, any depreciation of dollar towards the currencies of
countries where the US holds foreign assets, leads automatically to an increase in the
value of these US foreign assets (since local currencies appreciate towards the dollar
and the US assets are denominated in local currencies). Thus any depreciation of the
dollar increases the value of the US foreign assets, whist it leaves relatively
unaffected the value of its liabilities. Taking into consideration that for most of the
period after the beginning of the 2000s the dollar has been depreciating significantly
(above 20%) in real effective terms towards most main foreign currencies of
relevance to the US NIIP, it is clear that this channel has allowed the US to generate
huge capital gains able to offset significantly the negative implications of its rapidly
deteriorating, over the same period, current account balance
63
. Furthermore, taking
into consideration that the US can exercise, to a considerable degree, control of the
international value of the US dollar (both through monetary, interest-rate and foreign
economic policies), then this valuation channel is the channel which the official US
policy apparatus can control the most. The fact that the dollar has been strengthened
as a result of the current crisis strengthens the US advantage in this area.
Asset price valuation. There are at least two aspects with regard to asset price
valuations. The first relates to the type of assets of which the US foreign assets and
liabilities consist. In particular, the majority of US foreign assets are in equity type
investments, FDI and portfolio equity (high risk high returns), while the majority of
US liabilities are in debt obligations, mostly bonds (low risk low returns).
Consequently, the value and valuation of the US foreign assets depend on fluctuations
in the international stock prices (measured in US dollars), while the value of the US
bonds remain rather stable and the official US policy apparatus maintains interest-
rates policy as a means to influence them. Thus, in conditions of international
economic stability (real or illusionary—see the ‘great moderation’ period), when
international stock markets tend to be stable or move upwards, then the capital gains
extracted from the US foreign assets (FDI and portfolio equities) outperform by far
the US debt liabilities. And considering the strengthening of the place of emerging
powers in the global economy this pattern of returns is likely to continue in the
foreseeable future
64
. Of course, this valuation affect is moderated or reversed in
periods when international stock markets are plummeting. Yet, in this latter case a
reverse of financial flows back to the US mitigates this negative valuation impact.
17
The second issue with regard to asset price valuation concerns the dynamic of the
relationship between US foreign equity assets (FDI & portfolio equities) and US
foreign liabilities in respective equity-type investments (i.e. the US foreign liabilities
that do not concern debt obligations). Here the direction of the valuation effect
(positive or negative) depends on how the US stock market performs in relation to
international stock markets. When the US stock market outperforms its competitors
the value of US liabilities (US equity owned by non-US investors) increases (i.e. there
is a negative valuation effect for the US), whereas when stock markets internationally,
for instance in emerging powers, outperform the US stock market, as has been the
case since the break out of the global economic crisis, then the value of US foreign
assets is boosted (positive valuation effect for the US). Putting this in historical
perspective, Lane and Milesi-Ferretti found that
65
: (a) during the period 1983-92 stock
prices increased at similar rates in the US and the rest of the world. Yet, for most of
this period US foreign equity liabilities were significantly larger than U.S. foreign
equity assets, and therefore the valuation effect had been negative for the US. (b)
During the period 1993-2001 the US stock market outperformed stock markets
internationally, and this negative valuation effect for the US was multiplied by the
appreciation of the US dollar. (c) During 2002-2006, these conditions were reversed,
and the positive valuation effect generated by the boom in stock markets outside the
US was multiplied by the depreciation of dollar, and the fact that the amount of both
foreign assets and liabilities had significantly increased as a percentage of the US
GDP. Taking into consideration, however, that fluctuations in the US stock market
exercise a significant psychological impact on international (stock) markets and
significantly influence international market sentiments, one would overall expect a
rather synchronic movement of US and international stock markets, and therefore
valuation effects coming from diverse stock market performances should not be
exaggerated taking also in consideration that the majority of the US foreign
liabilities are in bonds
66
. Notwithstanding, in the ‘decade of debt’ that the West is
going through (see above) it could be assumed that portfolio equities in the emerging
powers would be more attractive to investors in comparison to equities in western
stock markets.
Other and Residual Valuation. This channel has sparked a great debate in the
literature
67
. Since the beginnings of the 2000s, the positive valuation impact coming
from this channel on the US external position has been significant (at times equivalent
to the positive effect from the exchange rate valuation). There is no agreement
however whether this positive valuation impact comes from unrecorded/misrecorded
financial flows (FDI or portfolio equity), problems in the measurement of the stock of
assets and liabilities, or not accounted for (or not easily accountable) capital gains
from intangible US assets, often referred to also as ‘dark matter’ (e.g. export of
business and management know-how and brand name value).
Of course, valuation effects are not ‘US-specific’. They can and do occur in all
countries. This is most evident with regard to exchange rate valuation changes. As
shown above, the external debt of most countries is not only denominated in different
currencies, but it also expressed/measured in US dollar value. Thus fluctuations in the
value of the US dollar and other external-debt-related-currencies produce
automatically valuation changes for the countries involved. For instance, whereas in
2011, on average, the US dollar was depreciated against the Brazilian real, the
Japanese yen, the Chinese yuan, the South Korean won, the Mexican peso and the
18
South African rand (thus producing positive valuation changes for the US), it
appreciated against the Indian rupee (thus producing positive valuation changes for
India)
68
. In particular, for the period between end-March 2011 and end-December
2011, this dollar appreciation produced a positive valuation effect on Indian external
debt of US$12.2 billion. Thus, whereas without the valuation effect the Indian
external debt at the end of 2011 would have been US$ 347.1 billion, the valuation
change brought this number down to US$ 334.9 billion
69
.
Yet, the multiplicity of the valuation channels described above demonstrates that the
case of the US with regard to valuation changes is unique both quantitatively and
qualitatively. From the above analysis, it is evident that the US due to the
international role of dollar, the degree of the international economic integration of its
economy, and overall its central/hegemonic place in the global economy has at its
service a unique range of structural and institutional mechanisms that function as
‘automatic stabilisers’ not only for the sustainability of its external position but also
for its broader hegemonic role in the international economy. And this, without
including the role, effect and influence of the US in the organisations and institutions
that define the existing international economic architecture (e.g. IMF, World Bank,
G20).
To conclude, the analysis of valuation effects demonstrates the multiplicity and
complexity of the channels through which the US has been able to ‘devalue away’ a
significant part of its external debt over the past decade. For this reason, the
mechanisms of valuation changes are a critical aspect of the study of the nature and
dynamic of the current power politics of debt.
At the final analysis, agency matters as much as structure
In our preceding analysis we have tried to assess the implications of the global
economic crisis the broke out in 2007/8, in terms of new global debt relations,
dynamics, dependencies, politics and economics. We have also attempted to examine
less apparent aspects of this global debt architecture that manifest the structural power
of the US, as well as ‘structural biases’ embedded in the existing structure that favour
the reproduction of the existing global politico-economic order and status quo.
Yet, it would be a mistake to take the impact of the current crisis on the US, China,
the EU and the other major politico-economic players as given. The impact that the
crisis will have on the major global politico-economic actors and their relations is not
independent from the way in which these actors have tried and will try to deal with
the ongoing crisis. Put differently, the impact of the crisis on each actor depends
critically on the policies and strategies that each actor itself deploys and has deployed
in order to overcome the crisis. The case of the Eurozone is a pointed example. The
handling of the Greek issue in 2009 mutated into a national debt crisis for Greece,
which itself mutated into a debt crisis for the Eurozone’s periphery, spread in Italy
and Spain, and threatens to bring about the collapse of Euro/Eurozone. Thus, to a
large extent Europe from ‘an-example-to-follow’ has now started to be seen
internationally as ‘an-example-to-avoid’. Furthermore, internally, the sense of trust
amongst European elites and peoples that have gradually been built after WWII now
seems to have reverted back to old nationalistic sentiments and stereotypes. Thus, a
19
crisis that originated in the US and could have been used as an opportunity to
strengthen the international role of the EU and its common currency, led to exactly
the opposite direction. It has proved damaging both for its international image and
role, and for its internal cohesion and integration dynamics. And this, primarily due to
the way in which the EU/Eurozone itself responded to the crisis.
The response to the crisis is also critical because it determines how long it will take
for each actor to exit the crisis and at what cost. Here, one should be very cautious
with forecasts and generalisations. Yet, the evidence presented hitherto seems to
support overwhelmingly the thesis of a decade of debt and debt adjustment for the
West, specifically the US and the EU. A lesson drawn from past debt crises in
advanced economies is that the mode of deleveraging is key for a return to a
sustainable economic path. For instance, not dealing in time and effectively with bad,
non-performing loans clogs the financial system and undermines its stability and
credibility. The longer the problem remains unresolved, the longer it takes for a return
to a sustainable growth path. For instance, in Japan, the failure, for almost a decade
after the burst of the real estate and stock market bubbles in 1989, to deal effectively
with its overleveraged corporate sector, has been an important factor behind the
country’s inability to overcome its economic crisis for the past two decades
70
. Of
course, international currency politics and the appreciation of yen after the Plaza
Accord, is also critical for understanding the ‘Japanese malaise’.
In the current debt crisis and in terms of deleveraging the US seems to have taken a
much more resolute stance in comparison to the EU. As Roxburgh et al demonstrate
71
,
since the end of 2008, all categories of US private-sector debt have fallen as a
percent of GDP’. The larger reduction was registered in the financial sector, where by
mid-2011 the ratio had fallen below where it stood in 2000 - a reduction that in
absolute terms is estimated at $1.9 trillion. Nearly $1 trillion of this decline can be
attributed to the collapse of Lehman Brothers, JP Morgan Chase’s purchase of Bear
Stearns, and the Bank of America-Merrill Lynch merger. Since 2008, banks also have
been funding themselves with more deposits and less debt
72
. The respective reduction
in US household debt in absolute terms was 4 percent, approx. $0.6 trillion, one third
of which concerned defaults on home loans and consumer debt. Thus, in 2011 the ‘US
households have reduced their debt relative to disposable income by 15 percentage
points, more than in any other country; at this rate, they could reach sustainable debt
levels in two years or so
73
. Of course the problem of non-performing assets is far
from over in the US and the other side of this deleveraging process has been a rapid
increase in public debt.
On the other hand, while the EU/Eurozone has also experienced a rapid increase in its
public debt, a deleveraging equivalent to that seen in the US is still pending. Based on
past debt crises , this probably indicates that the Eurozone has been left behind in
terms of returning to a sustainable economic path, and thus its debt crisis may take
more time and resources to overcome. And this, despite the fact that the EU, at the
time of the break out of the crisis had, and still has, better economic fundamentals in
comparison to the US. A prolonged crisis in the European economy, however, cannot
but have a negative impact on the US economy and its adjustment process. In such a
scenario, in which a prolonged European ‘economic malaise’ drags down the US and
its economic recovery process, the result would be an acceleration of the geopolitical
20
and geoeconomic implications that are nested in the new global debt relations
described above. Yet, on this only time will tell.
Conclusions
It is a mistake to treat the ‘West’ and the ‘global South’ as single entities. Major
actors in both these blocks have different economic fundamentals and interests, are
integrated differently in the global economy, differentiated in their strength in global
economic negotiations, and have been affected differently by and have adopted
different strategies in response to the crisis. Yet, our analysis has shown that there are
significant differences in the debt and external positions between the G20 advanced
and emerging economies, that these differences produce historically unprecedented
global debt relations in favour of emerging economies, and that there is no easy or fast
(peaceful) way for the advanced economies to overcome the negative implications of
the current crisis and reverse the existing current account flows and dependencies
74
.
In this sense, post 2007/08 global debt relations breed the potential of geopolitical and
geoeconomic transformation. Our analysis, however, has demonstrated also that the
West and especially the US plays in its own court and maintains sufficient structural
power to control the parameters of any significant change in the global political
economy. Controlling these parameters, however, is not the same as deciding the
content and agenda of global political economy. Our findings suggest that the need to
deleverage and rebase the Western economic system on stable foundation, so as to
restore its sustainability, will not only take time but, most importantly, it is a game
that the West has to play from a position of weakness (excessive leverage and/or
indebtedness, eurozone crisis), at least in comparison to its traditional post-WWII
status.
In this environment, the emerging powers can and have strengthened their presence
and voice within the Bretton Woods system (e.g. enhanced role of G20, redistribution
of voting rights in the IMF). In this way, the system becomes more representative and
a decoupling of the ‘global South’ less likely. After all, this system has served as the
ladder used by the BRIC themselves, especially China, to emerge. But no significant
geopolitical changes seem to be in order. In this way, the most significant change
brought about by the new global debt politics and economics concerns the very
resolution of the debt crisis itself. In past episodes, hegemons would resolve ‘global
imbalances’ (see hegemonic imbalances) by imposing their will and self-beneficial
solution on all other stakeholders (by political pressure, sanctions, gunboats or
otherwise). Currently, the US seems no longer to be in a position to impose its terms,
about the needed global re-adjustment, on the rest of the world. In this sense, the
emerging powers seem to have gained a new space of policy autonomy. To what this
space will be translated depends on both structure and agency.
21
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24
1
See also Roitman, 2003
2
See also Crouch, 2009
3
Federal Reserve Bank of New York, 2012
4
Roxburgh et al, 2012
5
ibid.
6
Galbraith, 1994
7
Gills, 2010: 170; see also Wade 2008: 27
8
Data from IMF online statistics database (visited on 17/08/2012).
9
Reinhart and Rogoff, 2011a
10
Cecchetti et al, 2011
11
Reinhart and Rogoff, 2011a; see also Reinhart and Rogoff, 2008, 2009
12
See Bracke et al, 2008: 14, 15; See also Palat, 2010: especially 368-369, and Wade, 2010: 24.
13
Ibid
14
See Bracke et al, 2008: 20-21
15
See Gills; Wade, 2008; Newman, 2009
16
See Gills 2008, 2010
17
Claessens, 2012; see also Cecchetti et al, 2011; Roxburgh et al, 2010, Reinhart and Rogoff, 2011a
18
Roxburgh et al, 2010
19
(For the case of Latin America see Devlin and Ffrench-Davis, 1995
20
Roxburgh et al, 2012. Roxburgh et al quote as source Haver Analytics; national central banks;
McKinsey Global Institute.
21
See also Das, 2010.
22
Reinhart and Rogoff , 2010, 2011a
23
Cecchetti, Mohanty and Zampolli, 2011
24
Caner et al., 2010
25
Elmeskov and Sutherland, 2012
26
OECD, 2012
27
For respective figures in developing regional organisations see Development Finance International,
2009.
28
See for instance, Cecchetti et al, 2011; Reinhart and Rogoff, 2010; OECD, 2012
29
Reinhart and Rogoff, 2011a : 3; see also Reinhart and Rogoff, 2011
30
Roxburgh et al, 2010
31
Harverd et al, 2011; Roxburgh et al, 2010; Reinhart and Rogoff, 2011a
32
Roxburgh et al, 2010
33
See also Friedberg, 2010, Frieden, 2009
34
Harverd et al, 2011
35
See also Altman, 2009; Sally, nd.
36
ibid.
37
See Cecchetti et al., 2011
38
Williamson, 1999; Loser, 2004
39
According to the World Bank, ‘external debt’ is debt owed to nonresidents, by residents, repayable in
foreign currency, goods, or services.
40
Loser, 2004: 17
41
Although, the Greek debt was denominated in the country’s own currency, the Euro. For the Latin
America case see Devlin and Ffrench-Davis, 1995
42
See also World Bank, 2012
43
See Dias, 2010
44
Ibid. See also Das et al, 2010
45
Bracke et al, 2008: 23
46
See also Bracke et al, 2010: 22-23. For recent data see World Bank, 2012
47
Author’s calculations based on data from World Bank, 2012
48
World Bank, 2012: 1
49
See also, IMF, 2011: 14.
50
The fact that the value of the huge international reserves held by emerging powers (see above)
depends overwhelmingly on western currency exchange rates is also an important Western leverage in
global debt politics. For the evolution of currency composition of international reserves, see IMF 2011.
51
See World Bank, 2012a .
52
Indicatively see, Lane and Milesi-Ferretti, 2008; Higginset al, 2006; Gourinchas and Rey, 2005
53
Schmitt-Grohe and Uribe, 2012: 15
25
54
Cline, 2005: 35-36
55
Along similar lines, for the period 1986-2007, Lane and Milesi-Ferretti (2008) calculate the benefit
to $2 trillions.
56
Schmitt-Grohe and Uribe, 2012: 15
57
See also Obstfield, 2011
58
Cline, 2005: 34
59
See Higgins et al 2006
60
Cline, 2005
61
Nguyen, 2006, quoted in Higgins et al 2006
62
See also Lane and Milesi-Ferretti, 2008: 8-9
63
For a literature review and historical comparison of the impact of dollar’s appreciations/depreciations
on the US current account balance and NIIP, see Milesi-Ferretti, 2008.
64
See also Lane and Milesi-Ferretti, 2008
65
See also ibid.
66
See also Higgins et al 2006: 4
67
Among others see: Higgins et al 2006; Hausmann and Sturzenegger, 2007; Lane and Milesi-Ferretti,
2008
68
According to data published by the US Federal Reserve in February 2012.
69
See Government of India, 2012. Lane and Milesi-Ferretti (2006) offer one of the most
comprehensive, yet technical, global perspectives on valuation effects on a wide range of industrialised
countries.
70
Roxburgh et al, 2012
71
Roxburgh et al, 2012: 18
72
ibid.
73
ibid.: 1
74
See also IMF, 2011a
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