Are the Brics going to save the euro?
So now it seems it’s not just China who’s thinking of rescuing Italy. It’s the whole Bric grouping, along with aspirant South Africa, who’s considering joint action to save the euro zone. ‘We’re going to meet next week in Washington and we’re going to discuss how to help the EU get out of this situation’, said Guigo Mantega, Brazil’s Finance Minister, today. The Brics are on course to save the world. Or are they?
The announcement was still shaping the West’s headlines when a string of tepid reactions came from Brazil’s Bric colleagues. China said it would grant aid only if countries like Italy and Spain take the necessary steps to address their fiscal mess, and if the EU could first show it could put ‘its house in order’. India said the initiative was a freestyle by Brazil’s headline-grabbing finance minister. And Russia, clearly, was no more rushing to the idea, demanding a clearer roadmap from the Union before agreeing to anything. Brazil, the B in ‘Brics’, seems to be playing solo.
Brazil, however, is unlikely to go it alone. Its foreign reserves are substantial ($350bn) but not enough to plug every holes in the EU’s balance sheet (Italy’s public debt alone amounts to €1900bn). Nor is it sure that a unilateral bail out would prove very popular domestically, at a time when President Rousseff has more pressing battles to fight (inflation, corruption, and more). So unless the Bric come up with a surprise agreement, Europe shouldn’t count too much on a magic plan B.