Beware the storm

The financial crisis in Greece is finally starting to sweep across the rest of the world.

With efforts to provide rescue loans to Greece in a holding pattern, worries about prolonged budget turmoil in southern Europe are growing rapidly.

The doomsday forecasts even cite a worst-case scenario in which the entire euro-zone economy might collapse in the absence of an effective solution.

Furthermore, when and if western European financial companies hit by the crisis start to withdraw their money from the market, it may create a nightmarish scenario involving global credit tightening, resulting in a second global financial crisis.

Stock prices in the global securities market are already tumbling, and the prices of the relatively secure U.S. dollar and gold have risen sharply.

In Korea, too, foreign investors have rushed to sell their stocks, and the value of the Korean won has fallen as well. These are similar patterns to what we saw as the 2008 global financial crisis broke out, a crisis that originated from serious problems in the U.S. subprime mortgage sector.

We have warned of the potential dangers in southern Europe on several occasions, but we were mostly concerned with preparing the nation for a possible ripple effect rather than a direct hit.

But the situation has changed now. We should brace ourselves for the worst, as southern Europe’s financial crisis may become another global financial meltdown. We have no reason to feel secure now, except for the fact that we at least have sufficient foreign reserves.

Yesterday, the government held an emergency meeting to review our economic situation. It is fortunate that the government didn’t lose its sense of urgency and alertness about the possibility that the financial crisis in Europe will spiral out of control.

The government should now prepare all measures to respond to a worst-case scenario by keeping in mind that the financial crisis may spread across the globe. It needs to keep a close watch on inflows and outflows of foreign capital and ensure careful management of the foreign currency liquidity of domestic financial firms.

Aside from efforts to strengthen our internal preparedness, the government also needs to aggressively join international cooperation to prevent the crisis from spreading across the world. So far, our government has been relatively silent on the financial crisis in southern Europe. But if it can raise awareness of the need for international collaboration regarding this matter, it will help achieve our goals.