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What part should China play in European debt crisis?

By Tang Ye (Jiefang Daily)

15:24, October 09, 2011

Edited and Translated by People's Daily Online

It is difficult for China not to get involved in the European debt crisis. China's Foreign Ministry and Ministry of Commerce both recently expressed support for the beleaguered euro zone. However, that raises the question of how to help European countries without sacrificing China's own national interests.

Scores of Chinese economists from all around the country discussed these topics and more during the recent academic forum titled China-Europe Relations from a Global Perspective, which was hosted by the China-Europe Academic Network under Tongji University.

Improper responses likely to cause double-dip recession

Due to the slow pace of Greece’s fiscal reforms, which has made the country unable to fully meet the bailout conditions of the European Union and the International Monetary Fund, it is still uncertain whether Greece can secure a second round of bailout loans.

Ding Yifan, deputy director of the World Development Research Institute at the Development Research Center of the State Council, said that although Greece's economic scale only accounts for a small part of euro zone's total and its possible debt defaults will unlikely pose a severe impact on the euro zone, Greece's debt defaults will undermine investors' confidence in the euro.

"All euro zone countries must take some actions. Improper responses will lead to chain reactions. The financial tsunami will likely spread to the entire world again, and the world economy will likely fall into a double-dip recession," Ding said.

Furthermore, Moody's ratings agency recently downgraded the credit ratings of two French banks of Credit Agricole and Societe Generale. “The European debt crisis will likely cause a banking crisis in Europe. If the debt crisis continues to spread, European banks will have to be reluctant to put funds into the real economy and accordingly slow the pace of the global economic recovery,” Ding said.

No backing out for euro zone countries

Experts at the meeting said that there is no backing out for euro zone countries now. They must shoulder their responsibilities and make practical efforts to overcome the debt crisis.

First, a timely injection of cash into debt-laden countries is crucial to resolving the crisis. A late cash injection will result in higher bailout costs and leave euro zone countries with fewer choices.

Second, the deterioration of the debt problems in euro zone countries is the direct cause of the crisis. Many European countries have grown to rely too much on borrowed money, and should cut government spending as well as wasteful social welfare expenditure.

Third, the difficult situation may lead to a more unified E.U. fiscal policy.

The history of the euro zone has proven that every crisis will push forward its internal integration. However, the euro zone is still on a bumpy road to a fiscal union. Qiao Yide, a financial expert, said that to form a fiscal union, the European Union must undergo the long process of amending its constitution, obtaining the approval of the national parliaments of its member states and holding referendums.

How can China help Europe get out of debt?

China cannot turn a blind eye to a global crisis, which may be caused by the deepening European debt crisis.

Qiao made several suggestions about China's assistance to the euro zone.

First, China should buy more bonds from multilateral institutions, including euro bonds and the bonds issued by the European Financial Stability Facility, because they are less risky.

Second, China should encourage domestic enterprises to expand in Europe, carry out business cooperation with European companies or purchase those companies' preference shares that do not carry voting rights to avoid political obstacles.

Third, China should increase the weight of the euro in the RMB's currency basket.

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  1. Name

ASEAN at 2011-10-10220.255.1.*
China should NOT act as a Hero on the world stage.Because there is a saying " Hero die first ".Because if you try to rescue Europe, China will be sucked into that BIG SHIT and probably China die first before Europe.Think hard. The leadership in Beijing have a moral responsibility to help its people first. This is the same as in every country. After all, China as a whole is still an undeveloped and poor country. A lot of your people are still living below the poverty line.
omniviewredux at 2011-10-1072.49.29.*
China should pay off European debt!!!
Jean-Francois Morf at 2011-10-1081.13.250.*
STORY:1) Parents said to their spoiled children: never play liar poker, or we will punish you!2) But the spoiled children played liar poker, and so they loosed everything in 2008!3) Instead of a punishment, the spoiled children became 15 trillion $ debt recognition from their parents, but parents ordered to children to never play liar poker again...4) Not punished children immediately stopped to obey to any adult parent! 5) Not punished children immediately played the 15 trillion $ on liar poker again!6) Children also created from nothing a quadrillion $ liquidity (google: quadrillion $ derivatives), but this huge liquidity creation NEVER provoked hyper-inflation...7) Children sold to speculators cheap CDS: children must now pay back exorbitant!8) Children sold to speculators cheap PUT options on children stocks, but children must now buy back PUT options on crashed children stocks to exorbitant prices!9) The more the children stocks drop, the more the PUT options on children stocks rises, making children stocks drop even faster, making PUT options rise faster...10) Children dare insulting their parents (having saved children) for being insolvent!11) Children treat parents of PIIGS (it was an ill CALUMNY, but it was a self fulfilling prophecy, ruining more and more all parents, worldwide) 12) And in 2011, children are now ruined again, because poker players has again be more twisted then the disobedient children!13) Multi-billionaires poker players have now all the 15 trillion $ in their pocket!14) And the parents discuss to recapitalize again the children with dozen trillions $!15) The parents are the governments, and the children are the bankers...I said that the ill PIIGS story was an ill CALUMNY?i- = IllinoisCA = CaliforniaLU = LouisianaM = MichiganN =NevadaNY = NewYork(It would be an i-CALUMNNY to say that these 6 states are ill PIIGS!
romanov at 2011-10-0980.94.16.*
2011-10-9.It issue inner China but not should to help in crisis UE with cautious to be afraid of lose money and politicial principle.All time West to try overthrow chinese system.Communist's not support wealthy bourgeoisie.Today with fear they dissemble friend when to stabilize crisis to start intrique against People's China.Western psychological war against China to last for 1949 year.Question-UE today love chinese communist's?
Andrew at 2011-10-0986.162.45.*
China has to be very careful. It has to avoid to get sucked into a debt spiral that is generated by the western financial system. In fact this spiral has a lethal pyramid structure. Its dangers were very well described by Greg Pytel in his evidence to the British Parliament Treasury Committee. I suggest your read: largest heist in historyYou will understand then what the European (and the US") debt is all about. Greetings, Andrew
  

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