Sometimes, as you witness momentous events unfolding before your eyes it is difficult to predict with any degree of certainty what the eventual outcome of such events will be. But when you know that in some way, shape or form those events will affect you greatly then you have to pay careful attention to each and every development and prepare yourself to react swiftly and to move in whatever direction the unfolding events indicate would assure you a measure of safety and opportunity.
That should be our stance as we follow the unfolding events of the sovereign debt crisis gripping the eurozone countries. The Euro zone is that group of countries which have adopted the euro as their currency or have pegged their currency to the euro and these days there is one word that keeps cropping up in all the commentaries and analyses about the events which are transpiring there. That word is "contagion''.
The contagion which is spoken about in the eurozone has nothing to do with any biological virus or with the movie that was recently released depicting what could happen if such a virus were to spread. The pervasive fear of contagion that is gripping the world today is all about the sovereign debt crisis in the eurozone and the risk that is perceived of that crisis first engulfing all of Europe and then jumping the barriers and going global.
To a large extent contagion in the Euro zone itself is no longer just a possibility but is a reality. Beginning in May 2010 when Greece had to be bailed out by the euro zone countries and the IMF to the tune of some 110 billion euros the contagion swiftly spread to Ireland which received a bailout package of some 78 billion euros in November that year and then to Portugal which received a similar infusion in May 2011.
Now there are real fears that Italy, Spain, Belgium and even France could all follow down the slippery slope to virtual bankruptcy. And already there are signs that the chilling prospect of the contagion jumping the eurozone barrier and spreading to the rest of the world is perilously close to becoming a reality. The collapse of MF Global, a medium-sized financial brokerage firm based in the United States, has been attributed to its heavy investment in euro zone bonds.
But the crisis, the contagion, which is unfolding in Europe, is not just an economic or financial one. The politics is also in turmoil. The Irish government which negotiated the bailout agreement for that country was shortly thereafter booted out of office. The Greek Prime Minister was forced to resign and one week later, Italy's President Silvio Berlusconi, who had survived all manner of scandal in his 20 years in office, was also forced to resign.
The political turmoil is the direct result of the social unrest triggered in large part by the austerity measures governments have been scrambling to put in place to protect themselves from the worst effects of the debt crisis.
Already there have been serious protests, escalating in some cases into riots, in Greece, Spain, Portugal, the UK and France. And the "Occupy Wall Street'' movement in the United States cannot be considered to be entirely uninfluenced by what is happening in Europe.
The political, social and financial turmoil in Europe is real and the fears of contagion to the rest of the developed world are real and to understand both the turmoil and the fears we need first to understand how and why a debt crisis in a small peripheral economy of the eurozone could have such shattering repercussions in the eurozone in the first place and, potentially, globally.
The euro was established under the terms of the Maastricht Treaty by the European Union (EU) in 1992. To join the currency, member states had to qualify by meeting the requirements of the treaty in terms of budget deficits, inflation, interest rates and other monetary requirements. What, in effect, the provisions of the Treaty created for those countries which joined, was a tightly integrated financial system.
It was this systemic nature of the eurozone which allowed a country like Greece to pile up debt way beyond the capacity of its own economy to repay. It could do so because investors felt that its debt was backed not just by the Greek economy but by the entire zone itself. In particular it was the fact that banks in other eurozone countries were the main investors in Greek debt that is now the root cause of the contagion.
The eurozone banks were all heavy investors in the debt of other eurozone countries. So that if one country were to default it would create a domino effect and spread to all others. That is the contagion that is so greatly feared. But as we have seen, merely the fear of that happening has been enough to panic investors with holdings in any of the eurozone countries and they, as a consequence, have been busy trying to unload all their euro debt.
And it is this same systemic integration of the banking and financial institutions throughout the developed world which raises the fears of the crisis jumping the eurozone barrier and going global.
How this crisis is going to play out is not known. What is certain is that the unmediated integration of financial systems, one of the cornerstones of the globalisation process, is unlikely to remain intact. If this is so then every country, including Trinidad and Tobago, would have to carefully assess how such a sea change will affect it and be ready to react to defend its own position.
But as we stand in our shoes and wonder it would be prudent of us to take some defensive action. The first act would be to reduce, or at least not extend, the absolute size of our debt and, perhaps even more important, to seek to reduce the external component of any such debt. Beyond this the most we can do is to keep a watchful eye on developments and be ready to move.
• Mr Harris has been for many years a writer and commentator on politics and society in T&T and the wider Caribbean. He is a long-standing
member of the Tapia House Group and works as a human