By Anna Fitzpatrick, Contributing Reporter
SÃO PAULO, BRAZIL – The strong position of Brazil and other developing nations during the current economic crisis could see them helping out debt stricken countries in the European Union, according to Finance Minister Guido Mantega. President Dilma Rousseff is in New York to open the United Nations General Assembly, and will also attend a meeting taking place between the BRICS (Brazil, Russia, Indian, China and South Africa) countries, the IMF and the World Bank.
It has been confirmed that Mantega will also be participating in the meeting on Thursday. On the agenda will be the availability of sovereign bonds for sale on the international market and Greece’s ever-growing debt burden.
The talk of BRICS nations buying bonds of certain EU nations has apparently already started as speculation in Italy last week indicated that the Chinese had already been buying Italian bonds. It was however, also suggested that sovereign bonds of the more stable EU nations would be preferred, coming from Germany or Great Britain, for example.
Mantega sparked rumors and debate in both Brazil and other BRICS nations last week when he was quoted as saying that the EU needs help: “We’re going to meet next week in Washington and we’re going to talk about what to do to help the European Union get out of this situation.”
As Mantega explained to Valor Econômic, Brazil’s financial daily, the political interest in the strategy to buy sovereign debt from Europe is “to appear publicly as contributors to market stability and thereby demonstrate to what extent the balance of the global economy is changing.”
Should a plan be hatched to enable the BRICS nations to bail out other nations, the so called PIIGs (Portugal, Ireland, Italy and Greece) for example, it would be a huge reversal of fortune for the historically economically-strong European countries, not to mention the complex relationships left in the wake of colonialism.
British daily newspaper The Financial Times notes that the BRICS effort “would mark another symbolic change in the balance of forces in the global economy toward the large emerging markets.”
It is not only these countries that are now struggling. The United States, France and Great Britain are also feeling the pinch from high debt, government austerity measures and, in some cases, high unemployment.
There are well placed fears for the future of the Euro zone and, by contrast, the BRICS nations are booming with high growth rates all around. However, Mantega’s statement last week did come as a shock to many, especially as Brazil is struggling to keep inflation at bay and is coming under criticism from certain quarters.
Nevertheless, there are warnings not to take this as a bailout, only a diversification of reserves for the BRICS nations. Of course, investment in sovereign bonds would not have to be undertaken as a BRICS block, and may be action taken by individual nations.