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article imageOp-Ed: Euromess gets worse — China very cool on bailing out EU

By Paul Wallis     Nov 3, 2011 in World
Sydney - China has taken the pragmatic view of the Euromess, and isn’t yet prepared to commit money to the European Financial Stability Fund. That may be the bullet for the long term bailout approach, unless the EU starts delivering results.
The idea was that China would invest in Eurobonds, by default financing the bailout of Greece and perhaps other Eurozone countries. The Chinese have made it clear they have serious reservations.
The BBC reports:
….It was thought the Chinese authorities may agree to help the troubled economies, not least because the region is one the biggest market for Chinese exports and a crisis may dent demand for Chinese goods and hurt its export-dependent economy.
However, the decision by the Greece government to hold a referendum on the latest bailout package has seen the authorities take a cautious approach.
"Like our European friends, we did not expect [the call for a] Greek referendum," said Mr Zhu. (Zhu Guangyao, China's deputy finance minister.)
"It was an independent decision taken by Greece. I hope this period of uncertainty would be contained," he added.
The Chinese, in fact, weren’t keen to start with and have been saying so. They’ve been taking a pretty jaded view of the apparently interminable Western economic blunders, and have been less than impressed, as this quote from Xinhua indicates in an article not very ambiguously titled Would China come to rescue for euro crisis? Having said that it was in China’s interest to support Europe as its biggest export market, this was the breakdown of the logic involved:
However, whether China should offer a helping hand would depend on what the rescue package is like, said Xiong Hou, a researcher with the Chinese Academy of Social Sciences (CASS), a top Chinese think tank.
"What if default happens in the future? What if other countries follow in the footsteps of Greece? Many people would ask why we should step into the mess," Xiong said, "The key to the debt crisis and the lifeline of the European economy are in the hands of Europeans themselves, rather than China."
It would be an unacceptable scenario to let a developing country like China pay the bills while Europeans sit idle. "It is just like a big hole was created by someone, but somebody else is asked to fill it," Xiong said.
This commentary is a lot more trenchant than it sounds. One of the reasons Wall Street and other financial markets are getting so jumpy is that Europe is seen to be doing very little effective in terms of shutting down possible defaults by Greece, Portugal and Ireland. Italy is seen as another possible candidate for default, and that really would be disastrous.
Also relevant are the clear indications from France, the UK and Germany that they’re not prepared to endlessly bail out their less efficient neighbours. This reluctance is based on realism. The Eurozone economies most at risk are also those least capable of generating the sort of capital required to cover their massive debts. The bailout has received quite a lot of flak as “rewarding incompetence”, although that’s the polite version of “rewarding corruption” in some circles.
Many of these countries have ignored basic EU rules regarding deficits, which are supposed to be no more than 60% of GDP. That’s colossal mismanagement by any standards, and the EFSF is supposed to be the vehicle to deal with it. No wonder China is looking rather unimpressed by the option of paying good money for a scheme in which the Europeans themselves have drawn a series of lines.
China isn’t going to be much affected by a few minor EU nations falling off the bandwagon. It would, however, suffer considerable damage if the EU really started to disintegrate. China’s trade with the EU is so big that it’s building a “Silk Track” through western Asia to reduce shipping costs. An EU meltdown could also cripple the global financial markets, sending banks over the edge like lemmings. The dangers are very real, and paying for the privilege of participation obviously isn’t really much of an incentive for China.
The EU should be paying close attention to the Chinese commentary. If the EU can’t save Greece, can it do much about the others? That’s a very good question, and the answer will make or break the EU.
Note: I'm sure the irony of expecting China, which suffered so much from Western influence in the past and is the world's biggest communist economy, rescuing the original home of Western capitalism is some sort of karmic justice. Let's hope China is more civilized in its response to Europe's needs than the West was to China when it went through decades of misery.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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