Sunday, September 02, 2012

China and the euro crisis

German Chancellor Angela "Frau Fritz" Merkel was in China last week signing some business agreements and getting away from home for a couple of days. A China Daily article on the meeting is titled Wen lends eurozone a hand 08/31/2012:

China may buy more European government bonds, providing eurozone debt risk can be contained, Premier Wen Jiabao told visiting German Chancellor Angela Merkel on Thursday.

An agreement with Germany to purchase 50 Airbus jets for $3.5 billion was signed in Beijing on Thursday, a timely boost for German trade as the European powerhouse shows signs of being hit by the eurozone crisis.
It makes perfect sense from China's point of view to use the European crisis to try to expand its influence. Europe sure needs the help. The public statements don't indicate that China is pressing Frau Fritz to ease her destructive austerity policies. Why should they? Their obvious and continuing failure offers China opportunities, though the growth slump to which the austerity measures are contributing mightily is damaging to China's exports in the short run:

Merkel’s two-day visit is her second trip to China this year and takes place against the backdrop of the worsening EU debt crisis and weakening China-EU trade.

Since the two leaders met in February, China has unveiled a range of aid plans, including a contribution of $43 billion to the recapitalization of the International Monetary Fund. ...

China may buy short-term EU government bonds in small quantities but it is too risky to sharply load up on EU debt as the situation in Greece, Italy and Spain may worsen in September, said Zhang Monan, an economist with the State Information Center, a government think tank.

"The premier’s remarks expressed a strong sign to support its biggest trading partner as well as help stabilize confidence in the euro and the world’s economic recovery," Zhang said.
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