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 to 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.
Governments around the world welcomed in the second decade of the 21st century hoping the economic events of the noughties could be placed in history, the talk of economy recovery could finally materialise. The global economic crisis has become symbolic of the first decade of the 21st century. Talk of the imminent demise of Capitalism has given way to the worlds leading economies coming out of recession and possibly the end of the global economic crisis. Many of the headlines over the Christmas period brushed aside the collapse of Dubai’s economic miracle, as many of the worlds leading economies were reporting the growth of their economies for the first time after over a year.
However Capitalism never disappoints, positive news is usually followed by another set of facts which prove the underlying fundamentals are anything but stable. Greece the cradle of Western civilisation hit the headlines when investors questioned if Greece will ever be able to pay off the £259 billion in government debt it currently owes. The euro has been battered over the past month as some even started to fear the break-up of the Eurozone.
PIGS is the acronym the financial markets coined to describe the troubled and heavily-indebted countries of Europe: Portugal, Ireland, Greece and Spain. Some analysts use PIIGS to include Italy - Europe's longstanding biggest debtor. The debt crisis these nations face means the global financial crisis is anything but over, there is however a number of issues that need to be understood to gain a clear picture of this latest episode in disaster Capitalism:
1. Greece is the latest sick man of Europe. It is now officially on the long list of European states that are considered the sick men of Europe. European attempts at defending themselves against a deep recession, has now created a new crisis of unsustainable and un-serviceable sovereign debt. Much of this can be attributed to stimulus packages passed by European governments in order to blunt the effects of the economic crisis, especially in preventing massive layoffs. Europe’s heavyweights spent massively on stimulation packages - Germany enacted about 81 billion euros whilst France around 26 billion euros. At the same time total EU stimulus spending amounted to 280 billion euros. General government debt levels have skyrocketed across the eurozone, but especially in the PIIGS countries. However Greece like many of the world’s premier economies was living beyond its means well before the economic crisis began. This was a crises waiting to happen.
2. At the centre of the crisis is the fractional reserve banking system where a small amount of physical money in notes and coins can be used to create debts many folds over. The Greek debt crisis raises some every pertinent question’s which all Capitalist nations will face at some point. Greece has debts of 300 billion euros, with an economy of only 240 billion euros and a government budget of only 91 billion euros. Greece has to finance debts of 53 billion euros in 2010. Greece currently is only surviving with the help of the ECB’s liquidity provisions – bailouts. However across the Capitalist world the situation is far worse, Britain’s economy produces just over a trillion pounds a year, but Britain’s sovereign debt is over £9 trillion with a government budget of only £800 billion.
3. The Euro was hailed as the replacement to the dollar. However the financial crisis has brought a damning fact to the surface, whilst countries such as France and Germany will be able to service their debts, nearly all of the other eurozone nations have pitiful financial situations where they have spent well beyond their means and now when it has come to repay this debt the feasibility of meeting the regular monthly repayments is looking impossible. The issue the Euro has faced from its inception is the fact that all the euro zone nations have very divergent economies and hence the strength of the euro is in the strength of the Euro zone economies and only as strong as the weakest link.
4. With the dollar in a weak position due to the position of the US economy and the euro taking massive speculative hits this may very well be the beginning of the end of Western Capitalism. The rise of China has already led to many monumental shifts which has been shifting global economic power from West to East. China overtook Germany as the world’s largest exporter in December 2009, China possesses the world’s largest currency reserves by far and it will soon provide the majority of consumer goods for the world’s largest importer, America. If China was to develop its political will, it will be in a very strong position to challenge the US and shift the global balance of power.
5. The response to this sovereign debt crisis reveals that any union be it economic, monetary etc will always lack coherence without political unification. This episode has shown that the EU in reality is a glorified customs union. The European Union has today expanded well beyond its original founder states. Consensus on how far enlargement should go and how deep integration should be continues to plague the union. Member states are reluctant to relinquish their sovereignty to bureaucrats in Brussels or leave key decision making to the two nations that dominate the EU – Germany and France. A union based upon a confederation makes the EU a mere customs union – so whilst from an economic perspective the EU acts as one block, political sovereignty means the union will always remain disjointed. The Lisbon treaty was in fact an attempt to overcome such differences. Various summit’s in February 2010 by EU member states to deal with the Greek crisis and its wider implications led to no concrete decisions on Greece. Currently very little specifics on how Europe intends to tackle the Greek have not even been agreed. This is fundamentally due to the political differences that exist within the union.
6. Fundamentally a union of states into a larger union is a weak method of amalgamation. It lacks the characteristics found in full unification where a people become one nation. A union as a method of binding peoples and nations is always prone to political differences as it continues to recognise the sovereignty of constituent nations, leaving itself open to differences and penetration from the outside. Amalgamating such nations would be virtually impossible as they would be too different. Whilst the Lisbon treaty was meant to stream line decision making, the EU has stalled on such a key issue due to political differences. All European states have differing identities and this continued obstacle means the powerful nations within the EU are will continue to pull the union in a direction different to the other member states.
7. The Islamic way of ruling is to establish equality between the subjects in all the regions of the State. Islam grants non-Muslims who hold citizenship, the full rights and duties that Muslims have. They enjoy the same fairness as Muslims and are subject to the same accountability as them. Furthermore, every single citizen, regardless of his or her creed, enjoys rights that even a Muslim living abroad who holds no citizenship does not enjoy. Islam considers every single region of the Khilafah as an indivisible part of the State and its citizens enjoy the same rights as those in the central region. In this way over a generation different peoples will become a homogenous entity and this gives it strength, makes the nation move in one direction – which leads to progress. Muhammed (saw) established Islam in Madina and he ruled over a people where the Ummah was a minority. Treaties were signed with the surrounding Jewish tribes and the rights between the Muslims and non-Muslims were clearly defined in the Ash-Shifah document, which was in effect a constitution. When Muhammed (saw) passed away the whole Arabian Peninsula was under Islamic authority and the Sahabah then expanded the Islamic lands to North Africa, the Sub-continent and Central Asia. By ensuring no region had separate legislative, political and economic rules, this created a sense of unity and resulted in the conquered to fully embrace Islam, make it their own and then carry the call to the surrounding lands. Muhammed bin Qasim embraced Islam when under Umar (ra) Iraq came under Islam, Muhammed bin Qasim then carried this call to the subcontinent. In a similar manner it was under Mu’awiyah that the Berbers of Egypt embraced Islam, the Berber turned Muslim Tariq bin Ziyad then took Islam to Spain.
Conclusions
The EU will inevitably be disjointed as the major powers such as France and Britain view Europe from the perspective of achieving their own national interests. The Khilafah offers a unified approach to global affairs through the Islamic method of a unitary state, with one ruler, one foreign policy, one economy, one adoption globally and the absence of customs and tariffs domestically. A nation or people wishing to join the Khilafah are welcomed, they would come under the authority of the Khaleefah who would have to provide their security in return for their loyalty. They become subjects of the state like any other citizen irrespective of their beliefs. Islam has clearly designated the Khilafah as the method of unifying the Ummah, anything else is destined to fail, a deviation from Islam and will turn the global Ummah into another EU – disjointed and unable to progress.
Governments around the world welcomed in the second decade of the 21st century hoping the economic events of the noughties could be placed in history, the talk of economy recovery could finally materialise. The global economic crisis has become symbolic of the first decade of the 21st century. Talk of the imminent demise of Capitalism has given way to the worlds leading economies coming out of recession and possibly the end of the global economic crisis. Many of the headlines over the Christmas period brushed aside the collapse of Dubai's economic miracle, as many of the worlds leading economies were reporting the growth of their economies for the first time after over a year.
However Capitalism never disappoints, positive news is usually followed by another set of facts which prove the underlying fundamentals are anything but stable. Greece the cradle of Western civilisation hit the headlines when investors questioned if Greece will ever be able to pay off the £259 billion in government debt it currently owes. The euro has been battered over the past month as some even started to fear the break-up of the Eurozone.
PIGS is the acronym the financial markets coined to describe the troubled and heavily-indebted countries of Europe: Portugal, Ireland, Greece and Spain. Some analysts use PIIGS to include Italy - Europe's longstanding biggest debtor. The debt crisis these nations face means the global financial crisis is anything but over, there is however a number of issues that need to be understood to gain a clear picture of this latest episode in disaster Capitalism:
1. Greece is the latest sick man of Europe. It is now officially on the long list of European states that are considered the sick men of Europe. European attempts at defending themselves against a deep recession, has now created a new crisis of unsustainable and un-serviceable sovereign debt. Much of this can be attributed to stimulus packages passed by European governments in order to blunt the effects of the economic crisis, especially in preventing massive layoffs. Europe's heavyweights spent massively on stimulation packages - Germany enacted about 81 billion euros whilst France around 26 billion euros. At the same time total EU stimulus spending amounted to 280 billion euros. General government debt levels have skyrocketed across the Eurozone, but especially in the PIIGS countries. However Greece like many of the world's premier economies was living beyond its means well before the economic crisis began. This was a crises waiting to happen.
2. At the centre of the crisis is the fractional reserve banking system where a small amount of physical money in notes and coins can be used to create debts many folds over. The Greek debt crisis raises some every pertinent question's which all Capitalist nations will face at some point. Greece has debts of 300 billion euros, with an economy of only 240 billion euros and a government budget of only 91 billion euros. Greece has to finance debts of 53 billion euros in 2010. Greece currently is only surviving with the help of the ECB's liquidity provisions - bailouts. However across the Capitalist world the situation is far worse, Britain's economy produces just over a trillion pounds a year, but Britain's sovereign debt is over £9 trillion with a government budget of only £800 billion.
3. The Euro was hailed as the replacement to the dollar. However the financial crisis has brought a damning fact to the surface, whilst countries such as France and Germany will be able to service their debts, nearly all of the other eurozone nations have pitiful financial situations where they have spent well beyond their means and now when it has come to repay this debt the feasibility of meeting the regular monthly repayments is looking impossible. The issue the Euro has faced from its inception is the fact that all the euro zone nations have very divergent economies and hence the strength of the euro is in the strength of the Euro zone economies and only as strong as the weakest link.
4. With the dollar in a weak position due to the position of the US economy and the euro taking massive speculative hits this may very well be the beginning of the end of Western Capitalism. The rise of China has already led to many monumental shifts which has been shifting global economic power from West to East. China overtook Germany as the world's largest exporter in December 2009, China possesses the world's largest currency reserves by far and it will soon provide the majority of consumer goods for the world's largest importer, America. If China was to develop its political will, it will be in a very strong position to challenge the US and shift the global balance of power.
5. The response to this sovereign debt crisis reveals that any union be it economic, monetary etc will always lack coherence without political unification. This episode has shown that the EU in reality is a glorified customs union. The European Union has today expanded well beyond its original founder states. Consensus on how far enlargement should go and how deep integration should be continues to plague the union. Member states are reluctant to relinquish their sovereignty to bureaucrats in Brussels or leave key decision making to the two nations that dominate the EU - Germany and France. A union based upon a confederation makes the EU a mere customs union - so whilst from an economic perspective the EU acts as one block, political sovereignty means the union will always remain disjointed. The Lisbon treaty was in fact an attempt to overcome such differences. Various summit's in February 2010 by EU member states to deal with the Greek crisis and its wider implications led to no concrete decisions on Greece. Currently very little specifics on how Europe intends to tackle the Greek crises have not even been agreed. This is fundamentally due to the political differences that exist within the union.
6. Fundamentally a union of states into a larger union is a weak method of amalgamation. It lacks the characteristics found in full unification where a people become one nation. A union as a method of binding peoples and nations is always prone to political differences as it continues to recognise the sovereignty of constituent nations, leaving itself open to differences and penetration from the outside. Amalgamating such nations would be virtually impossible as they would be too different. Whilst the Lisbon treaty was meant to stream line decision making, the EU has stalled on such a key issue due to political differences. All European states have differing identities and this continued obstacle means the powerful nations within the EU are will continue to pull the union in a direction different to the other member states.
7. The Islamic way of ruling is to establish equality between the subjects in all the regions of the State. Islam grants non-Muslims who hold citizenship, the full rights and duties that Muslims have. They enjoy the same fairness as Muslims and are subject to the same accountability as them. Furthermore, every single citizen, regardless of his or her creed, enjoys rights that even a Muslim living abroad who holds no citizenship does not enjoy. Islamconsiders every single region of the Khilafah as an indivisible part of the State and its citizens enjoy the same rights as those in the central region. In this way over a generation different peoples will become a homogenous entity and this gives it strength, makes the nation move in one direction - which leads to progress.The Messenger صلى الله عليه وسلم established Islam in Madina and he ruled over a people where the Ummah was a minority. Treaties were signed with the surrounding Jewish tribes and the rights between the Muslims and non-Muslims were clearly defined in the Ash-Shifah document, which was in effect a constitution. When the Messenger صلى الله عليه وسلم passed away the whole Arabian Peninsula was under Islamic authority and the Sahabah then expanded the Islamic lands to North Africa, the Sub-continent and Central Asia. By ensuring no region had separate legislative, political and economic rules, this created a sense of unity and resulted in the conquered to fully embrace Islam, make it their own and then carry the call to the surrounding lands. Muhammed bin Qasim embraced Islam when under Umar (ra) Iraq came under Islam, Muhammed bin Qasim then carried this call to the subcontinent. In a similar manner it was under Mu'awiyah that the Berbers of Egypt embraced Islam, the Berber turned Muslim Tariq bin Ziyad then took Islam to Spain.
Conclusions
The EU will inevitably be disjointed as the major powers such as France and Britain view Europe from the perspective of achieving their own national interests. The Khilafah offers a unified approach to global affairs through the Islamic method of a unitary state, with one ruler, one foreign policy, one economy, one adoption globally and the absence of customs and tariffs domestically. A nation or people wishing to join the Khilafah are welcomed, they would come under the authority of the Khaleefah who would have to provide their security in return for their loyalty. They become subjects of the state like any other citizen irrespective of their beliefs. Islam has clearly designated the Khilafah as the method of unifying the Ummah, anything else is destined to fail, a deviation from Islam and will turn the global Ummah into another EU - disjointed and unable to progress.
As the global financial crisis continues to daily take a turn for the worse, Western Capitalist nations are fast running out of options to save their economies from complete meltdown. Whilst the US leads the war on terror against the Global Ummah and is keen to show Islam has no place in the modern world at the same time it has no qualms with Islamic finance to bail it out from its current predicament.
Saudi Arabia and China as well as many Sovereign wealth funds from the Muslims world have invested heavily in the US economy and with markets accumulating losses daily institutions from the Muslim world have gone beyond normal profiteering but to passing lifelines to some of wall streets most recognised titans. In January 2008 Kuwait along with the governments of Singapore and South Korea provided the $21 billion lifeline to Citigroup and Merrill Lynch, two banks that lost fortunes in America’s credit crisis.
The UAE, Kuwait, Qatar and Saudi Arabia have the largest Sovereign wealth funds in the world; their accumulation of oil wealth for the last 30 years has resulted in immense wealth flowing into such countries, which is invested across the world. The Qatar investment authority which manages Qatar’s Oil wealth set up a $1bn partnership with Investcorp to buy mezzanine debt related to US commercial property, which has nose dived during the last year. The fund also poured money into Barclays bank to the tune of £4.5 billion when it fell into trouble.
Dubai’s Sheikh Mohammed bin Rashid Maktum, made a 2.2% stake in the automotive giant DaimlerChrysler AG, which currently in talks to merge with its rival General motors to save itself from falling into bankruptcy.
Without the help of foreign money it is difficult to envisage how the US would ride out the current financial storm that shows no signs of abating. On the other hand the US funds much of its excessive consumption patterns by selling Bonds to foreign nations which China and Japan have accumulated. Without this extension of help the US would be in serious trouble as one of its main sources of income would dry up.
Even without the Islamic system the Muslim world has generally been insulated from the crisis. With the absence of interest and investment only in real assets, such nations have not been drowned by the fall on the financial markets. As such nations do not deal in debt trading and distance themselves from market speculation that takes place in European and American banks they have not seen the meltdown that is being witnessed by the US. Adnan Ahmed Yousif, CEO of the Bahraini-based Albaraka Banking Group and chair of the Union of Arab Banks outlined in an interview with the Middle East’s Asharq Al-Awsat when asked about the global financial crisis: ‘The success of Islamic banking will lead to serious consideration of Islamic economics, which continues to realize numerous achievements, as a viable alternative to the current global economic system which continues to be hit by these crises.’
If this is the achievement of applying just a fraction of the Shariah, imagine the stability and security that the Islamic economic system, established by the Khilafah system will bring. It is now abundantly clear that the Khilafah remains the only viable option for the Muslim world that will utilise the wealth of the Muslim Ummah and invest them in the economy for the development of infrastructure and in order to industrialise. Without the Khilafah Muslim wealth will continue to be squandered.
Source: http://www.financial-crisis.eu/home/featured/global-financial-crisis-muslim-lands-come-to-western-rescue
