Lessons from Argentina

While Europe, in the eye of the storm, faces great challenges regarding the future of the Economy, currency and ultimately the Union, there are lessons to be learnt. Argentina experienced similar problems to what Europe is facing now. By taking extreme actions, Argentina proved it is possible restructuring the Economy, and coming out “cleaner”. The question is, whether Europe is able to pull itself together, and come up with a credible plan of action? UK has already shown where it stands…From Spiegel;

But today, this emerging market stands as a shining beacon when compared to crisis-ridden countries in Europe. In the past, European and American politicians were only too happy to lecture Latin American countries on good budget management and debt control. Now, the question when European diplomats visit Buenos Aires is quite the opposite: Can Europe learn from Argentina?

Two American economists, Nobel Prize winner Paul Krugman and crisis prophet Nouriel Roubini, have advised Europe to take a close look at the Argentine debt crisis. “It seems as if they still haven’t learned anything from our crash,” Lavagna says, pointing out that Europe has prescribed its debt-ridden member countries the same austerity measures that brought down Argentina. “That creates a long-lasting recession,” he says, “and the region spirals further and further into decline.”

Few countries have the kind of extensive experience with financial crises that Argentina does, a country which underwent three collapses in the space of 20 years. Hyperinflation, chaos at the banks, debt moratoriums, debt restructuring — the same scenes simply repeated themselves. Argentines saw three different currencies come and go within 10 years and the country was a regular customer at the International Monetary Fund (IMF).

“We’re crisis specialists,” confirms José Luis Machinea. As economics minister under President Fernando de la Rúa, he had a front row seat as the crash unfolded. Machinea draws parallels to the crisis in Greece: Argentina too was caught in a currency trap, he says, with its peso tied by law to the US dollar.

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