Project Syndicate.
NEW HAVEN – Asian authorities were understandably smug in the aftermath
of the financial crisis of 2008-2009. Growth in the region slowed
sharply, as might be expected of export-led economies confronted with
the sharpest collapse in global trade since the 1930’s. But, with the
notable exception of Japan, which suffered its deepest recession of the
modern era, Asia came through an extraordinarily tough period in
excellent shape.
That was then. For the second time in less than four
years, Asia is being hit with a major external demand shock. This time
it is from Europe, where a raging sovereign-debt crisis threatens to
turn a mild recession into something far worse: a possible Greek exit
from the euro, which could trigger contagion across the eurozone. This
is a big deal for Asia.
Financial and trade linkages make Asia highly
vulnerable to Europe’s malaise. Owing to the former, the risks to Asia
from a European banking crisis cannot be taken lightly. Lacking
well-developed capital markets as an alternative source of credit,
bank-funding channels are especially vital in Asia.
