Brussels - From the Indian rupee to the fledgling tourist
industry in the Atlantic island chain of Cape Verde, more hangs on this week's
European Union summit than the future of the euro single currency project
alone.
While no one believes the 27-nation bloc can find a quick
fix to a debt mountain that was years in the making and which may stunt its
economies for years to come, EU leaders are under growing pressure to show they
can at least stop the rot.
"We're not expecting a sudden change in sentiment or a
dramatic end to the problem at the EU summit," a senior Japanese
policymaker told Reuters.
"But we also don't expect zero results. There should at
least be some progress in how they hope to get their house in order," said
the policymaker, who for reasons of diplomacy spoke on condition of anonymity.
A spiralling debt crisis in the 17-country eurozone that
started in Greece two years ago has long since cast a pall far beyond Europe's
borders. A lasting solution has so far eluded EU leaders, despite the 16
previous summits held since January 2010.
In Asia, the Indian rupee has been a prime casualty as
currencies are hit by a pull-out by foreign investors spooked by the euro
problems. It has dropped 16% in four months, and analysts fear a further slide
could spark a balance of payments crisis as deep as that which prompted a 1991
devaluation.
Damage to Asian economies, while bad enough in itself, could
have a knock-on effect on the world's no 3 economy Japan, whose hopes for a
modest upturn are largely pinned on buoyant exports to its neighbours,
officials in Tokyo fear.
While Europe's debt troubles have already had contagious
effects on other financial markets, an all-out European recession would
compound that by directly hitting its trade partners and, ultimately, many aid
recipients across the world.
That prospect edged closer on Tuesday with figures showing
the 17 euro countries recorded just 0.2% growth in the third quarter.
Investment was flat for the second quarter in a row as business confidence
evaporated.
US sees 'central role' for ECB
Before this week's summit, US Treasury Secretary Timothy
Geithner was touring eurozone capitals with a message that it is time to act.
Speaking after talks in Berlin on Tuesday, Geithner urged
reforms to "create the architecture of fiscal union", citing the
"central role" to be played by the European Central Bank (ECB).
"There is concern among corporate leaders, both in the
United States and Europe, about the uncertainty bred of lack of political
consensus on how to move the economy forward," US ambassador to the EU
William Kennard said before the trip.
"And that certainly is weighing on the world economy.
It's a factor both in Europe and the United States," he said, suggesting
the two were "in the same boat" with over-borrowed economies and
expensive welfare states.
Yet while the United States can turn to the Federal Reserve
as a lender of last resort, eurozone states have no such recourse to the
Frankfurt-based ECB - and EU heavyweight Germany is determined to keep it that
way.
Whether that position holds or not, Europe's main trading
allies are letting it be known in the runup to the summit they will have little
patience with half measures.
"The recession in Europe is now expected to be more
pronounced than the bank had anticipated in October," the Bank of Canada
said in an interest rate statement on Tuesday.
"Additional measures will be required to contain the
European crisis," it said, without spelling out what it expected.
Triple whammy for Africa
So far, outlines of a possible deal are patchy. A
Franco-German plan unveiled on Monday proposed changes to the EU basic treaty
to include automatic penalties for governments that fail to keep borrowing
under control, and an early launch of a permanent bailout fund for states in
distress.
The need for any deal to work is especially high for Africa,
tied into eurozone countries by a web of trade links dating back to the
colonial era, and whose recovery from the global economic and financial crisis
of 2008-2009 is now at risk.
From Ghana to Kenya, government debt yields have risen and
currencies fallen as many investors who two years ago were falling over each
other for a piece in new "frontier" markets are now so averse to risk
that they are queuing to leave.
Some European banks are now refusing to lend to firms
trading with Africa. France's Credit Agricole last week closed its 60-year-old
South African unit.
Cape Verde, one of the unsung success stories of Africa in
the last decade with annual economic growth rates averaging 6%, now fears for
its tourist and real estate sectors as hard-up Europeans start deciding against
a new holiday home.
"The demand for real estate in the tourism sector is
stagnant, which has consequences for the employment," said Olavo Correia,
a former governor of the central bank who now heads the Cape Verdean
Association of Tourism Builders (PROMITUR).
Mthuli Ncube, chief economist at the Tunis-based African
Development Bank, said Africa faced a triple whammy if Europe's difficulties
curtailed its exports to the zone, put much-needed foreign aid at risk and
further discouraged potential investors.
Predicting a marathon summit with several rounds of talks, Ncube
warned that failure by Europe to overcome the crisis could mean it lagging
further behind other investors in Africa, where China now surpasses Europe as
the top trading partner.
"There is a risk that Europe will be too inward-looking
and forgets to look outside for opportunities," Ncube said in a telephone
interview.
Benoit Anne, head of emerging market currency strategy at
French bank Societe Generale in London, said the 2012 outlook for investment
from the neighbours in Central Europe to further afield in Latin America now
hinged on the EU's ability to plot a viable path out of its debt morass in a
matter of weeks.
"We are getting close to a make-or-break
situation," said Anne. "There is no room for muddling through any
more."