As the representatives of G20 nations gather in Cannes, thrashing out a new way forward for the ailing European Union's economies, a major yet little observed economic sea change is underway, as the torch is passed from Europe's capitalist systems, forged over the past four centuries, to countries considered until a couple of decades ago "Second" and "Third World - the BRIC nations of Brazil, the Russian Federation, India and China.
While it is as yet unclear what form this historic and dynamic shift will ultimately take, investors would be well advised to take notice of this historic economic tectonic shift.
Furthermore, there are indications from Cannes that the BRIC countries are slowly developing a joint agenda, further signaling the G20's primacy as a rich European-American dominated club. Arriving in France on 2 November Brazilian president Dilma Rousseff said that any solutions to European and global economic difficulties need to promote economic growth and employment. On the G20s sidelines, the day after her arrival President Rousseff met with her BRIC peers to discuss developing a common stance.
One area where the European Union is certain to be working the sidelines of meeting is to seek loans for the European Central Bank to head off a default by Greece and shore up the economies of the more wobbly EU nations, including Italy, Spain, Portugal and Ireland.
Can the BRICs assist?
Certainly, if they choose to. China is now the 800 lb gorilla in terms of foreign reserves, having accumulated an eye-watering $3.2017 trillion as of September.
Brazil is sitting on $350 billion in foreign reserves, the Russian Federation has banked $459.8 billion and India - $320 billion.
All told, the BRIC nations are sitting on $4.3316 trillion. Compare that to the current U.S. national debt of $14.97 trillion, which in the next few days will cross the symbolic $15 trillion level, and the magnitude over the BRICs accomplishments besides Washington and Brussels is undeniable.
The question is whether the political will exists in any of the BRIC nations to bail out profligate European and American lifestyles, and here the issue gets tricky.
If the BRICs decide to dip into their treasuries and assist the European Union, it is most unlikely that any money loaned will be without strings. First and foremost, all four nations will have to conduct a sophisticated public relations campaign to explain to their citizenries as to why the revenues built up by their thrift should be deployed to bail out a Europe largely portrayed as made up of wastrel, self-indulgent nations.
That said, the BRICS need Europe, not least as a trading partner. Last month Ambassador Song Zhe of the Delegation for Relations with China of the European Parliament stated that in the period January-August China-EU bilateral trade grew by 21.8 percent over the corresponding previous year's period to $372 billion. The Chinese Ministry of Commerce reported that in July China surpassed the United States as the European Union's largest trade partner after bilateral trade rose to $49.1 billion. According to data released by the EU's statistics office, bilateral EU-China trade now accounts for 13.4 per cent of the region's total imports and exports.
The Russian Federation's bilateral trade with the EU consists primarily of energy exports. The EU is now the Russian Federation's biggest trading partner, with $336.5 billion in bilateral trade in 2010, representing a 45.8 percent share of the Russian Federation's overall trade. In 2010 EU imports from the Russian Federation increased by 31.4 percent and exports from the EU to the Russian Federation rose by 38.2 percent.
India? EU-India bilateral trade has soared, more than doubling from $39.4 billion in 2003 to over $93.6 billion last year.
In 2010 Brazilian exports to the EU totalled $ 43.1 billion, an increase of 26.7 percent from 2009 and Brasilia projects a trade surplus of nearly $30 billion this year.
So, the BRICs have little overall desire to see the European Union's economy tank. But doubtless in the wake of the Greek crisis the quartet will be cautious to throw good money after bad, and accordingly the European Central Bank can hardly expect any loans without stringent conditions attached along the lines of those that the World Bank and International Monetary Fund have imposed on their loans to the Third World for years, a development that will be quite a shock to European national pride.
It also seems likely that any loans will come with political "conditions" attached, however odious Brussels might find them. While it is doubtful that few if any of the agreements might make their way into the media, the overall "wish lists" of the BRIC nations are not hard to discern, and will likely include a number of the following points.
For China, political considerations attached to loans could include increased access to EU markets, EU technology transfers (particularly in the energy field) and a muting of EU criticism of Beijing's human rights policies, particularly in Tibet and Xinjiang. The Russian Federation would doubtless seek similar conditions as well. As for additional foreign policy inputs, Beijing could well seek the EU to refrain from criticizing its South China Sea policies, which increasingly discomfit China's Southeast Asian neighbors.
The Russian Federation, in addition to the concerns with China listed above, would be likely to both dampen EU complaints about its increasing reliance on Russian energy imports as well as increased support for Russian energy policies such as the North Stream and South Stream natural gas pipelines, the latter of which would likely doom one of the EU's most cherished projects, the Nabucco pipeline. On military issues, Moscow would doubtless like to see Brussels reign in Washington's expansionist NATO policies.
As for India, besides increased trade opportunities, doubtless New Delhi would like to see criticism of its nuclear policies abate, as well as support for a long-sought political opportunity, a permanent seat on the UN Security council, a goal also sought by Brazil.
As for Brazil, it has no human rights issues to speak, significant energy imports to Europe, though this could change in the future as Brazil's South Atlantic offshore oil fields come online, so besides EU support for a permanent UN Security Council seat, Brasilia's concerns are likely to be otherwise exclusively economic, primarily increased access to EU markets.
What is clear to those with the foresight to see is that a historical shift in the traditional European-U.S. post-WW2 dominance of the global economy is underway, and that the BRICs will be increasingly prominent in the evolving new economic world order.
Accordingly, astute investors ought to pay increased attention to the economies of the quartet, as, unlike Washington and Brussels, they are flush with cash and none are experiencing the recession currently ravaging much of the rest of the globe.
By. Dr. John C.K. Daly of Oilprice.com