G20 must not allow Euro crisis to derail development efforts - Oxfam
A Eurozone breakup could cost the world's poorest countries $30 billion (£19.3 bn) in lost trade and foreign investment, international agency Oxfam has warned today, ahead of the G20 leaders meeting in Mexico next week to discuss the state of the global economy.
Oxfam has calculated that the demise of the European single currency and the resulting drop in European countries' GDP would mean a loss for Least Developed Countries of up to $20 billion (£12.8 bn) in revenue from exports to Europe in the year following the breakup. Poor countries could expect to lose a further $10 billion (£6.4 bn) due to reduced investment from the continent.
Without additional outside help, many poor countries would be locked into a vicious spiral of falling export earnings, forcing cuts in already limited spending on essential services such as public health and education.
$30bn is the equivalent of almost a quarter of the global aid budget and would represent a significant loss for poor countries which are already facing a variety of challenges from food shortages, falling aid and reduced capital flows as a result of the economic crisis.
Three years ago, the G20 countries launched a framework for "strong, sustainable and balanced growth", but according to Oxfam, 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.
Oxfam Chief Executive, Barbara Stocking, who will attend the G20 as a member of the B20 Taskforce on Food, said: "The Euro crisis doesn't just threaten livelihoods from Athens to Madrid; it is a clear and present danger to people in low income countries who are struggling with grinding poverty and already feeling the effects of significant cuts in aid. G20 leaders have an obligation to find a solution to this crisis, not just on behalf of their own citizens but to protect all those that have exhausted their means to protect themselves."
Stocking insisted that while G20 leaders search for a solution to the Eurozone's problems, they must also make a concerted effort at the summit to address the looming food crisis in West Africa and the longer term failings in the global food system that mean one billion people around the world go to bed hungry.
The UK government has just announced a further £10 million ($15.6m) to help the 18 million people threatened by dire food shortages in West Africa, but with the UN appeal for the region still more than £400m ($600) underfunded, Stocking has called on all G20 countries to pay their 'fair share' to help tackle the crisis.
Stocking added: "Our leaders must take much bolder steps towards delivering a fairer, safer and more prosperous world for all and addressing the issues that mean 1 in 7 of the world's population don't have enough to eat. The big question is whether the G20 has the political will to step up and deliver."
With a view to helping those most impacted by the global economic crisis, Oxfam is calling on the G20 to support a global financial transaction tax (FTT, known in many countries as a Robin Hood Tax) with the proceeds to support essential public services and fund development and climate financing. The European Commission has proposed a Europe-wide FTT that would raise $71 billion (£45.6bn) a year.
Stocking said: "It is disappointing that the UK government has set its face against international efforts to agree a Financial Transaction Tax that could raise tens of billions to help the world's poor."
Oxfam is calling on the G20 to implement a five- point policy programme:
- Take action to fix the broken food system. The G20 must address the most important drivers of the food price crisis: increased demand for biofuels, financial speculation on commodities, land rights and climate change.
- 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 reduce 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 by introducing an FTT and a carbon price on international shipping, which would help to cut emissions and in the process raise $25bn a year.
- Ensure 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 task the IMF to make inequality reduction a measure of progress alongside GDP growth.
- 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.
For information and interviews contact:
In Mexico: Caroline Hooper-Box:
email@example.com +52 (045) 624 35 58 630; + 1 202 321 2967 or Iván Muñoz firstname.lastname@example.org + 52 1 55 54 303 773; 52 (045) 653 132 2195
In the UK: Lucy Brinicombe (food) email@example.com / 07786 110054 or Jon Slater (economic crisis) firstname.lastname@example.org/ 07876 476403
Explanation of Oxfam's figures:
Oxfam's projection is based on an extrapolation on what occurred during the first stage of the economic crisis in 2009.
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 if the euro breaks up. A calculation - using the 2009 crisis as reference - suggests that LDC countries could lose around 20 billion dollar 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 dollars. 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.
We used three data sources:
1. A scenario by ING on the economic impact (measured as GDP fall) in the euro zone. The total drop in output for two 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
2. 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: https://unctadstat.unctad.org/
3. The time series of GDP (real and nominal) from the World Bank's World Development Indicators. Source: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD
Additional notes to editors:
- 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.
- Latest OECD figures show aid from rich countries was $133bn in 2011 - a real terms fall of $3.4bn.
- 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.)
- 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.