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People's Daily Online>>Foreign Affairs

G-20 Summit cannot help EU out of debt crisis (3)

By Li Xuejiang (People's Daily Online)

17:19, February 24, 2012

Li Xuejiang: What kind of role could China play in this regard?

Preyma: China, and other countries who want to help the Europeans stabilize, can play an active role in its recovery by giving money to the IMF which is currently looking for €5-600 billion in funding from its members. This is a risk free way of “investing” in Europe without the risk of sovereign default as the IMF will never take a haircut on the debt that is owed. It is not the most potentially profitable but risk aversion is the only safe way for countries to help. For China, whose reserves are built up largely from the reserve requirement ratio and therefore a debt to its people, needs a risk free option. It is also the most diplomatic as countries do not have to choose which countries they help and which they don’t.

China should consider contributing to the IMF for this purpose. Japan has said that it is considering 50 billion U.S. dollars to the IMF depending on what others contribute this weekend at the finance ministers meeting.

Li Xuejiang: Why the United States would not like to listen to the concerns of Canada, Japan and EU on its Volcker Rule? Do you think there is possibility that the U.S. will take into account the Canada’s concerns virtually?

Preyma: The U.S. will have to listen to the concerns of Canada, Japan and the U.K. simply because of how much financial and trade business takes place between the U.S. and these nations. Canada has even stated that it will look into whether it contradicts the Free Trade Agreement between the two countries and has asked for the U.S., while trying to strengthen its own financial system, not derail that of everyone else. The comment period for the rule closed on February 13 and now the review of comments will begin. If the U.S. ultimately goes ahead with only having an exemption for its own sovereign debt – it would be considered a protectionist measure and I am sure that repercussions will follow.

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