China and Merkel do Diplomatic Euro Debt Dance

German Chancellor Angela Merkel is in China, sowing potentially advantageous diplomatic relations in the midst of the EU’s current economic situation. An article from NBC News’ Behind the Wall explains how, in addition to economic relief, Merkel addressed long contentious issues of domestic and international conduct.

As the leader of the strongest economy in the European Union, the chancellor has called for more “Europe,” a stronger union as an answer to the Eurozone crisis. And China with its massive $3.2 trillion in foreign currency reserves is seen as a potential source of critical support for any European bailout program.

[...]“I will advocate, that if Europe, for example, imposes sanctions (on Iran), that China still uses the influence it has to tell Iran that we do not need, and cannot allow, another power with nuclear weapons,” [Merkel] told the assembly at the Chinese Academy of Social Sciences.

The German leader has raised a wide range of issues with the Chinese side, including human rights, intellectual property protection, and improved market access.

The ABC piece cites a China Daily article, which discusses the possible intentions of visits by Merkel and her European counterparts:

As a Chinese saying goes, one does not visit the temple for nothing. Public media home and abroad are speculating profusely on the purposes of these visits by European leaders. Obviously, the European leaders, being the first group of important Wester visitors to China in the Year of the Dragon, are not just here to say Happy New Year. In their briefcases, as some predict, there will be a long list of demands which they will present to the Chinese side.

Indeed, never before has Europe been in greater need of China’s help. In the past year, the European Union has been beset with a festering sovereign debt crisis. More recently, thanks to a series of measures, that debt crisis seems to be less disruptive, though the problem is far from over. Uncertainty abounds.

[...]It is not surprising, therefore, that a struggling Europe has cast its eyes on China.

In an Asia Pacific Memo post, Xu Hongcai from the China Center for International Economic Exchanges (China’s “super think tank”) explains why China hasn’t yet begun buying Eurozone bailout bonds, and outlines the three “ingredients” that Europe must supply for recovery:

China has still not committed to invest in the European Financial Stability Facility (EFSF), the stopgap fund created to tackle the European sovereign debt crisis. Officials have said that China will not use its $3.2 trillion (USD) in foreign exchange reserves to rescue other countries. Why is this so?[...]

[...W]hile China is willing to be a “responsible stakeholder” in the global economy, European countries and the IMF must offer a credible investment mechanism to China (and other would-be investors).

For China, a solution to the crisis requires three key ingredients.[...]

Also see CDT coverage of the Eurozone Crisis, China and The Begging Bowl.

February 3, 2012 5:20 PM
Posted By: