The Non-Monetary Effects of the Far East Financial Crisis on European Union Economies
European Union Review, Vol. 4, No. 2, 1999
Posted: 10 May 2005
Most Southeast Asian economies (namely those of Hong Kong, South Korea, Indonesia, Malaysia, Singapore, Taiwan and Thailand) have been in financial crisis since the second half of 1997, resulting in ongoing slumps on local stock exchanges, banks' financial distress and in many cases severe recession. The intensity of the crisis has varied, with some countries suffering severely, while others seem able to make the sustained efforts necessary to deal with the downturn.
The potential consequences of the Asian crisis on the economies of America, Japan and Europe have already received much attention. Most studies have concentrated on the financial consequences, which are evident and measurable, rather than on the non-monetary consequences, which are often laggard and hidden. This article aims at investigating the non-monetary consequences of the crisis on the economies of the European Union and, in particular, the competitive implications for European businesses: the economic slump and currency devaluation could affect European business at several different levels.
First, we consider the role of Southeast Asian countries as markets, both for European products and foreign direct investments: we observe the role of these countries as market outlets for European products and services and for the absorption of European direct foreign investment.
Second, we look into the competitive effects of the currency depreciation: Southeast Asian firms act as competitors in many sectors, and could represent a strong threat to European firms' market shares. We examine the question of the extent of direct competition between Southeast Asian and European businesses in certain industries, considering areas where the models of commercial specialization differ so much as to neutralize potential competitive effects.
The analysis, based on Southeast Asia's recent development and crisis, predicts that there should be only a moderate impact on European firms. Southeast Asian countries were, even before the crisis, peripheral and difficult markets for Europe. In addition, there is a strong divergence between Asian and European economies in the structure of exports.
Keywords: Far east, financial crisis, competitive effects
JEL Classification: F00, F20
Suggested Citation: Suggested Citation