G20 must not allow Euro crisis to derail development efforts
A Eurozone breakup could cost the world’s poorest countries $30 billion in lost trade and foreign investment, international agency Oxfam has warned ahead of the G20 leaders meeting in Mexico to discuss the state of the global economy.
Many poor countries would be pulled into a vicious spiral of falling export earnings, damaging their economies and putting pressure on already limited resources for essential health and education services. $30 billion is almost a quarter of the global aid budget, and represents an additional burden on poor countries at a time when 18 million people in West Africa are at risk of a looming food crisis. Donors have so far failed to come up with adequate funding to help those going hungry.
Oxfam’s calculations are that if the Euro breaks up, the resulting drop in European countries’ GDP would mean a loss of income for Least Developed Countries – most of these in Sub-Saharan Africa – of up to $20 billion in revenue from exports to Europe in the year following the breakup. Poor countries could expect to lose a further $10 billion due to reduced investment from the continent. A collapse of the Eurozone would exacerbate the problems already facing low-income countries, including food shortages, failing aid and reduced capital flows as a result of the economic crisis.
Oxfam is calling for a Financial Transaction Tax
Oxfam is calling on the G20 to support a financial transaction tax (FTT, known in many countries as a Robin Hood Tax) to help poor people hit by the economic crisis by allocating FTT revenues to development and climate change adaptation. The European Commission has proposed a Europe-wide Financial Transaction Tax that would raise $71 billion [€57 billion] a year. The G20 also needs to take urgent action to curb financial speculation on food commodities, reverse biofuels policies that transform food into fuel and improve land rights. Oxfam spokesperson Steve Price-Thomas said: “The Eurocrisis is a grave threat to poor countries already reeling from hunger and aid cuts. G20 leaders have an obligation to protect those that have reached the limits of their ability to defend themselves against the crisis.
“We need a concerted effort to protect poor people from economic and food crises that have left one in seven people in the world hungry. The financial sector should work in the interests of society not the other way around: that means curbing food speculation and insisting the sector which bears responsibility for the economic crisis helps poor people trapped by it.”
Capital flows to developing countries have plunged
Three years ago, the G20 launched a framework for “strong, sustainable and balanced growth”. They will meet in Los Cabos having delivered little for people most at risk of losing their livelihoods and most likely to be pushed into poverty.
Gross capital flows to developing countries plunged to $170 billion last year compared with $309 billion in 2010 and aid to developing countries fell by $3.4 billion last year.
Price-Thomas said: “The G20 must use their power to solve the crisis in the world beyond Europe. Whether or not they do so is a political choice.”
Oxfam is calling on the G20 to:
- Take action to fix the broken food system. The G20 persists in failing to address the most important drivers of the food price crisis: increased demand for biofuels, financial speculation on commodities, and climate change. Most urgently, 18 million people in the Sahel now face a severe food shortage. This is on top of the nearly billion worldwide who already go hungry.
- Clamp down on tax dodging and improve tax transparency. Developing countries are losing billions every year that would provide a vital boost to their economies and could be spent on reducing poverty. So far the G20’s promise to crack down on tax havens has largely failed to materialize.
- Raise money for increased public spending and support to the poorest introducing a carbon price on international shipping, which would help to cut emissions and in the process raise $25 billion a year.
- Concentrate on ensuring that growth is fair and boosts equality, so that its benefits reach people living in poverty. As a first step G20 countries must publicly and annually report progress on reducing inequality and make inequality reduction a measure of progress alongside GDP growth. They should task the IMF with doing this.
- Support increased investment in high-quality public health and education services. These are crucial safety nets for the poorest and those falling on hard times, as well as crucial investments in future productivity and a fairer society.
Notes to Editors
Oxfam’s calculation on the monetary cost of a euro zone total break up on LDCs used three data sources:
- A scenario by ING on the economic impact (measured as GDP fall) in the euro zone. The total drop in output for 2 years is 12 percent. During the first year after the break up, the loss would be 8.9 percent (this economic contraction would be worse than what happened after the collapse of Lehman Brothers in September 2008). Source: EMU Break-up. Pay Now, Pay Later. ING Global Economics 1 December 2011
- A time series of the trade matrix between the euro zone and Least Developed Countries (48 countries as defined by the United Nations). This information is available in the UNCTAD Stat website under International Trade. Also, the time series of foreign direct investment in LDCs. Source: http://unctadstat.unctad.org/
- The time series of GDP (real and nominal) from the World Bank’s World Development Indicators. Source: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD
- Trade data shows a sharp reversal of LDCs exports to the world and the euro zone in 2009. The total value of exports from LDC to the Euro zone fell by 30 percent in 2009. This represented a loss of 10 billion dollars in export income for LDCs from one year to the next. This occurred when GDP (in real terms) in the Euro zone fell by around 4 percent. The reversal was so large that LDC exports of goods in 2010 were still below the 2008 level.
- ING has detailed a scenario where GDP in the Euro zone could fall by 8.9 percent in 2013 if the euro breaks up. A quick and rough calculation – using the 2009 crisis as reference – suggests that LDC countries could lose around $20 billion in income from exports to the Euro zone alone.
- A similar calculation on foreign direct investment suggests an additional loss in income of $10 billion. Foreign Direct Investment to LDCs fell by 20 percent in 2009 – from 32.3 to 26.4 billion – in the aftermath of the Lehman collapse. A euro collapse could mean a decrease in FDI flows of 10-11 billion to LDCs.
- Gross capital flows to developing countries plunged to $170 billion last year compared with $309 billion in 2010, according to the World Bank’s 2012 ‘Global Economic Prospects’ report.
- The least developed countries (LDCs) are a group of countries that have been identified by the UN as “least developed” in terms of their low gross national income (GNI), their weak human assets and their high degree of economic vulnerability. There are 48 countries currently on the UN’s LDCs list. (Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, the Central African Republic, Chad, the Comoros, the Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, the Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, the Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, the Solomon Islands, Somalia, Sudan, Timor-Leste, Togo, Tuvalu, Uganda, the United Republic of Tanzania, Vanuatu, Yemen and Zambia.)
- Latest OECD figures show aid from rich countries was $133 billion in 2011 – a real terms fall of $3.4 billion.
- A group of G20 countries – Argentina, Brazil, France, Germany and South Africa – backed an FTT for development and climate change at the Cannes summit in November. It followed a report from Bill Gates which backed the policy.
Culled from https://www.oxfam.org/en/pressroom/pressrelease/2012-06-15/eurozone-breakup-would-cost-poorest-countries-30-billion