The debt crisis in Greece is ample proof that the world is still reeling from the global financial crisis that occurred in the aftermath of Lehman Brothers' collapse in September 2008. Initially only a handful of governments like Pakistan, Ukraine, Iceland and some Eastern European were affected by the credit crunch. These countries had to borrow money to meet their debt obligations and ensure fiscal stability. But now, the crisis threatens to overwhelm several European countries such as Italy, Spain and Portugal and may even spread to countries like Britain and America. Just this week the IMF said that the crisis of the past two-and-a-half years had affected public finances across the globe in a way not seen since the Second World War. In 2007, when the credit crunch began, 40% of countries sampled by the IMF were running budget surpluses, but by 2009 this had dropped to 10%. Countries with deficits higher than 3% of national output (gross domestic product) increased from 20% to 70%. In advanced economies, the ratio of debt to GDP was projected to rise from 73% in 2007 to 109% in 2014, the highest it has been since the early 1950s.

IMF revelations come at a juncture, when deep fissures have emerged amongst world's leading capitalist countries, as they struggle to grapple with the prevalent debt situation. The transatlantic relationship is under a new strain as America and EU bicker on how best to restrain hostile speculators and aggressive hedge funds. Whilst in Europe, schisms between Europe and Germany over aid to Greece have undermined the European Union's collective response to the crisis. Germany is averse to providing financial help to Greece as she believes that Greece has not learnt from its mistakes of the past such as the exaggeration of fiscal accounts. Others in Europe have detested IMF interference and have called for a European fund to bailout debt stricken European economies-much to America's annoyance. So how did the West allow the global financial crisis to spread its tentacles so far and wide?

If one recalls the crisis was limited to the banking sector, but soon engulfed the whole financial sector as well as big corporate companies across the world.  In a frantic effort to offset the global financial crisis, America and Europe spearheaded world-wide initiatives such as quantitative easing, introducing huge fiscal stimulus packages, buying financial assets (government and company bonds) and lowering of interest rate. These measures at best provided a temporary respite, but came at a huge cost.

Governments around the world had to borrow heavily from the international money markets to finance such initiatives.  In essence the money was used to prop-up the ailing banking sector, by transferring private debt into public debtor or in layman's eyes taking tax payers' money and giving it to the rich financial institutions at the expense of everyone else. Very little of the money was used restructure the archaic financial system or invested to increase the manufacturing capability of the nations. Consequently, governments were saddled with huge mountains of debt and people were left out of pocket. International speculators quickly seized on the inability of governments to reduce enormous debts on their balance sheets. The speculators hedged and forced the currency of such countries to depreciate.

To counter rampant speculation, many experts advocate strong austerity measures to reduce government debt. However, reducing debt through cutting back on fiscal spending or raising taxes and interest rates is no remedy to dysfunctional capitalist economies that are on the verge of extinction. Unless the Capitalist States are prepared to back currencies with gold and silver, abolish privatization of public utilities, change property ownership laws that lie at the very heart of speculative economies the world will continue to head towards an economic catastrophe not witnessed before.

It is during such times that Muslims around the world must rise to expose the fallacies of the capitalist economic system and become strong advocates for the return of the Caliphate. Only the Caliphate can lift the world out of its economic misery and restore economic systems and policies that are just for black and white, rich and poor, Muslim and non-Muslim alike.

22-3-2010

Abid Mustafa