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The Eurozone Turns Down Chinese Money And Quid Pro Quo
By Wolf Richter www.testosteronepit.com
For months, rumors China would use its $3.2 trillion in foreign exchange reserves to bail out the Eurozone with the stroke of a plastic pen goosed financial markets. But China has a list of demands, a veritable quid pro quo. And today the European panhandling delegation in Beijing, instead of demurely accepting those demands or offering compromises, turned them down. "A slap in the face," according to Reuters.
And the Eurozone goes back to square one. It needs money to increase the firepower of its bailout fund, the EFSF, to €1 trillion. In 2012, a tsunami of debt matures. Alone the four largest countries in the Eurozone need to roll over nearly €1 trillion in debt: Italy €307 billion (19.3% of GDP); Germany €273 billion (10.6% of GDP), France €240 billion (12% of GDP), and Spain €132 billion (12.2% of GDP). Then there’s the tidal wave of new debt that will be issued to fund current deficits and bank bailouts. And the standard fallback solution of having the central bank start up the printing press and buy up sovereign bonds is complicated because the ECB is barred by treaty from doing so—though it’s already doing so.
There were even speculations that Germany was planning to form a mini-Eurozone with a few select members that would follow the same fiscal policies—so powerful had the speculations become that Chancellor Angela Merkel had to step forward and deny them with great emphasis.
Europe’s desperation meets Chinese eagerness. The European Union is China’s largest export market. The 27 countries with a population of over 500 million bought €282 billion in Chinese merchandise in 2010, up 18.9% from 2009. China's export machine depends on a stable Europe to thrive. And financially, China is already stuck. A quarter of its foreign exchange reserves are in euro-denominated investments. If the euro were to take a hit, China would be one of the big losers.
China has already reached into its deep pockets. It invested €10 billion in the Greek shipping industry. While many merchant ships fly the Greek flag, China is a growing force in shipbuilding, and it wants to lock in its customers. In non-Eurozone Hungary, which is struggling with its own debt crisis, telecom equipment maker Huawei is building a logistics center for the European market. And China Railway Construction Corp has agreed to modernize Hungary’s rail network. China has even bought some of the bonds issued by the EFSF, according to its CEO, Klaus Regling.
But China doesn’t want to be the dumb money. October 30, Zhu Guangyao, Vice Finance Minister, suggested that China would wait and see how the technical details of the fund’s proposed special investment vehicles would work out. This followed a warning by the government-owned news agency, Xinhua: China would be willing to invest in Europe on a win-win basis; the Europeans should not expect a Good Samaritan but be prepared to make concessions.
Which China has floated for months:
- EU support in obtaining market-economy status at the World Trade Organization.
- Removal of the arms embargo that the EU imposed after the 1989 Tiananmen Square massacre.
- Better guarantees for its investments.
- Greater influence at the International Monetary Fund, specifically through inclusion of the yuan in the IMF’s currency basket that underlies the Special Drawing Rights (SDR).
Alas, making concessions to China is the one thing that Germany and some other less desperate European countries aren’t prepared to do. Not yet.
"We're making a huge mistake if we stabilize the euro by permitting influence from an external government," said Hans-Peter Keitel, President of the Federation of German Industry (Handelsblatt). Germany, which has already surrendered its spot as the world’s number one exporter, is in no mood to cede more ground to China. And it’s fiercely resisting the temptation to offer political concessions in exchange for money. He added, “For example, we can't offer China compromises concerning intellectual property just to save the EFSF."
Resistance also came from other directions, as Germans shudder at the idea of becoming too dependent on money from the communist regime.
"It’s worrisome if a country that isn't a democracy obtains influence over EU members,” warned Peter Bofinger, a German economist and member of the German Council of Economic Experts. And Amnesty International fears that human rights will be moved to the back burner. Which, of course, they will be.
And so the delegation had gone to China empty handed. China’s demand for greater influence at the IMF and accelerated inclusion of the yuan in the SDR, which the Chinese apparently had seen as a feasible compromise, hit a wall of resistance (Reuters).
Clearly, the debt crisis isn’t deep enough yet for concessions. However, a vertigo-inducing spike in French yields or a 2,000 point drop in the DAX might change that, now that governments decide every issue with one eye on the ticker. Then Germans will be confronted with the choice of yielding to Chinese money, allowing the ECB to print unlimited amounts of money (and devalue the Euro), or invent another option, such as the mini-Eurozone that Merkel so vigorously denied or the revival of the deutschmark.
Export powerhouse Germany finds itself at war—with itself.... Germany at Its Rubicon.
Wolf Richter www.testosteronepit.com
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Speaking of greater influence and walls of resistance, what is the catalyst for China to begin lending RMB instead of buying foreign bonds? And how many US military bases in Iran will it require?
So Europeans are expecting China to come beg them to accept their money? If anything, Europe will be doomed by their arrogance.
BTW, when will people realize how stupid they sound calling Chinese gov communist? It's an insult to communists.
A curency cannot be in the SDR unless it floats.
An economy cannot be given market economy status unless it floats its currency.
China has cheated and poisoned enough. You have to float and play fair if you want to join the big boys club and wear big boy pants, you fucking chinks.
What are the SDR big boys? Let me see:
USD = Global toilet paper soon to be expired, A currency issued by the biggest bankrupted government in the history of the world
JPY = National Debt of 220% with Yentivention regularly by the Bank of Japan
GBP = trash currency nobody gives a flying fuck about it. Not a single one
EUR = A currency of a bunch of international beggar.
So impressive with this BIG CLUB somehow like a pathetic club of G7. When Yuan pegs with the Gold. These currency can say goodbye to the world. And you can't declare war to it, because China goes down, so does the rest of the world.
China needs Europe and the United States a lot more than they need China.
If China had pegged to gold a few years ago they would be in a state of economic and politcal collapse now.
TOO BAD. Nobody in China believes that nonsense only the Westerners pretend to be Chinese thought in that way. I think it's pretty clear who's having the economic and political collapse right now right here, Have Occupy Wall St people occupied your house yet?
Jeepers, China certainly is important! Nobody had better mess with them!!
Any idea as to when the yuan will be pegged to gold? Soon? Is it part of China's centuries-long plan? Thanks for your insight!!
It's not because China wants to be agressively self-centred like the overrated Euro or Usd. It's just because China as the world's second largest economy and the largest exporter and 3rd largest importer, the world's largest creditor and manufacturer, largest gold and rare earth producer cannot have Yuan to be included in SDR? you fucking kidding me?
China normally encourages the people to buy gold and also the central banks are buying golds too. Yuan eventually will be pegged with Gold if Euro/Usd does crash. It's not because China causes it, but the rule of currency exchange rate evetually has to be pegged with productivity of the produce and demand.
China and Russia will eventually peg themsevels together if things get ugly outside, because Russia has the oil and China has the industrial base and domestic market
Mate, just backtest what things would have been like for China if they had a free floating currency in the last 10 years. THAT's what is meant by the big Boys Club. When China is ready to play fiar, then they will see what a bubble they've been in.
Tell that to a Russian politician and ask what ask the laughing is about.
Russia does not, not has it ever trusted our respected China. You need their oil... something which never lacks for a market.
Don't think that they would easily forget the damage caused to their military exports by Chinese copies.
You should watch more RussiaToday and Listen to Tsar the Great Putin. Because they said they trust the Chinese, that's all it matters.Don't forget, Russia and China are strategic allies beyond any division on the minor issues because we have a common enemy.If they can cut off their gas supply easily to the Europe to make a strong statement. They know who their enemy is. Especially when EU/US trying stiring up wars against Russian's interest in central asia and the middle east. That's pretty clear what the geopolitical reality they are facing.
If I didn't get it wrong, Russia and China share the same interest how to make Japan to obey the rules at a certain level. Thanks.
Oh look; I picked up a rock and there you were...
why does everyone still assume that the, 'NWO' includes the U.S, and Europe at the forefront ? -
China has been pegged by 'TPTB',... `king, and India its `queen -
its that simple, with ~ 40 % +/+ of the worlds population, and Nepal as a formal cummerbund -
in a decade or less, china will be the dominating military power whether the rest of the world approves or disapproves - jmo
Yeah yeah yeah, and they have a bunch of state-of-the-art bullet trains that are shining examples of their 'superior' technology, right?
Nothing to be scared of.
Maybe Fukushima wonderland as you had reminded me?
So lucky China didn't have that state-of-the-art make their entire country glow in the dark. lol
Dude, your talking to a Canadian here, ok? Screaming about Japanese idiocy is a hobby of mine.
But don't forget from whom your country had copied most of it's tech.... You've gotta do better than that if you wanna shit on Japan.
Nobody, but nobody who knows anything about Chinese history is afraid of China on this board, and with good reason - you'll tear yourselves to bits again before you do anyone else.
Come back to us when your GDP flattens out and you've escaped your beloved country with a bag of cash. If it's so great, why are so many party officials preparing to offshore their families?
Not that I'm complaining, the women you send to Japan aren't shy, nor do they mind a but of white or dark meat at night.
When your customers have no more money...YOU GO OUT OF BUSINESS.
A decade?
LMFAO!
This whole saga is playing out like the most difficult level of Wolfenstein 3D.
"Let's bite the hand before it feeds us. We can print when all else fails anyway."
Next time they come back, China will demand more concessions to save face. I guess they think they can call someone names and such but go and use their money the next day. Europe's afraid of being to influenced by the Chinese, they are truly influenced by the Americans. They want to deny the Chinese anything that will make them more of a super power.
3.2 trillion in foreign exchange reserves....
Where did they get all these Joo bucks ?
The people who gave must have gave them the Joo bucks ,now need them back.
Joo funny.
Oopps...I mean too funny.
You mean the Chicoms want conditions attached? Well, no way when the USA will eventually give the Euros all the money they need, and as to terms, it will be due and payable right after all that WWII debt is repaid. And besides, those Chicom dollars have already been used, whereas the new ones from our Rich Uncle Sam will be all shiny and crispy newly minted ones.
The IMF (read USA) does not want the yuan in the basket of currencies.
Another part of this is the Chinese wanted to make Yuan denominated loans, partly because they don't want to reduce their US assets (there's probably a secret agreement when the government guaranteed the GSE debt, in return the Chinese would stay about where they are).
The Eurozone cannot borrow in a currency that is not free floating, or freely exchanged, or they could be easily fucked over. The other stuff is incidental...
I don´t understand how China would obtain any substantial influence over EU members by lending money to the EU or EU members. If they would lend money to Chinese businessmen which would buy media and banks in Europe I think that they could obtain some influence over EU members, provided that these businessmen would get citizenships in the countries they invest and provided that they would still be loyal to China.
I think that lending big money to Europe rather means more European influence over China because Europe is too big to fail.
I don´t understand why China can not buy more European and American goods rather than lend Europe and the US money. It is more likely that would be business on a on a win-win basis for both parties. Change the bank charter for the ECB so that it becomes easier for them to print money. If the US can kick the can down the road by printing money, why can´t Europe do the same?
The political influence is not in the lending of money, it is in the preconditions to the lending: for example the recognition of China as a market economy and the lifting of restrictions on military sales.
China could buy more American and European goods but it has decided that it wants to run positive trade balances so it manipulates its currency - mostly by lending money to the West.
There are basically two things going on:
1) China thinks that running positive trade balances is good for domestic harmony;
2) China knows it cannot challenge the US militarily now so it is holding back military expenditure and instead of buying more tanks and aircraft carriers it is buying American Treasuries. Getting a financial strangle hold on the West is going to be cheaper safer and faster for China than trying to intimidate the West militarily.
Absalon:
I don´t understand how the recognition of China as a market economy and lifting restrictions on military sales would buy China political power of any substantial matter. China has nukes and can build their own stealth jet fighters. Even Western Europe does not have domestically produced stealth jet fighters.
My assessment is that the biggest political problems for China right now is to improve the living standard for the masses fast enough and to secure access to raw material which China does not have. I think that China realizes that they won´t have any real power in the West unless they have Chinese businessmen in the West with European or North American citizenships who own big media and control banks and are more loyal to China than various European and North American countries. I also doubt that they think that it would be worth it to try to build power within the societies in the West just in order to secure access to raw material and export markets. Why depend on exporting of cheap junk to Europe and North America rather than increase domestic demand and supply for durable consumer goods and technologically advanced products?
By the way, are you Danish? Absalon was a Danish medieval bishop and warrior. (Absalon is often mentioned in Swedish historical TV-documentaries by Hans Villius. When hear about Absalon that inevitably brings the characteristic accent of Hans Villius´ voice to mind.)
Well, then just let the West crash hard like Soivet Union in that case.
Capitalism never lies about geopolitics. The rule of economics never compromise the military persistence
The West these days are really running like Soivet Union before collapse. Like massive failure of socialism, military over-expenditure sucking dry the social stability, eventually you are going to have a constitutional crisis and separatist groups taking over.
China can always wait for longer.
What were the Chinks demands? No tickie, no laundry?
They say "the apple doesn't fall far from the tree..." Your parents must be proud.
Beware of China bearing gifts for Greece.
"We're making a huge mistake if we stabilize the euro by permitting influence from an external government," &
"It’s worrisome if a country that isn't a democracy obtains influence over EU members,”
This could just as easily be Russia or the US - if you don't use the rather loose definition of "democracy". This isn't about democracy or influence per se, this is about hardball.
It's about old money vs new money, maybe? If you believe the "globalist" theories and the Bilderberger Stuff, the "elites" of the world like the Rothschilds et al have been planning this new world order thing for some time - forgetting that the Chinese invented the gunpowder and the paper the EU elites used back when they were the new money. Chinese didn't invent baseball, but UR is correct - they understand hardball.
No "external governments." But "external banks" are fine, it seems.
This is a First! How many Trillions did the EU banks get from bernanke's Fed?
But they do have a point about a "quid pro quo" arrangement. When you have a powerful NATO why give in to any quid pro quo? Just take it!
Europe still has it's bazooka right?
It's a WOII model, but never the less a bazooka. I wonder if it still shoots...
DUD!
why should Euro Zone take chinese money when they can get Bernanke money for free and without any conditions. Long live the banksters.
good point these Banksters are slowly but surely buying all the world assets with money they print out of thin air. Libya tried to escape it but was crushed and their gold and oil seized. Iran with out question is next. To the rest of the world don't even think about dealing outside of U.S. dollars or you will be destroyed as well.
Until a majority decide to trade outside of the dollar simultaniously... then the dollar will be destroyed. It takes time to mobilize a military and costs tons of money. If western nations are embroiled in depressions people will not be too hasty about supporting ever increasing invasions, especially as prices start skyrocketing.
I thinks it a lot more than just devaluing the dollar (which is no longer happening btw.) they appear to be "running to the rapist" since China is also a massive trading bloc as well. The good news is it should end quickly. The bad news is the only place capable of helping in the rebuild you just pissed off. Probably forever.
Because the Yuan goes up and the dollar goes down.
China has problems of their own. Any ambition about becoming creditor to the industrial world carries a fatal flaw. No production economy cn prosper by selling into a declining market. China may shoot itself in the foot in attempts to indebt the world.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
Oops II, looks like Slovaks might still be a fly in the ointment:
.
Slovak PM says ECB shouldn't buy govt bonds
http://www.reuters.com/article/2011/11/12/slovakia-ecb-idUSL5E7MC0IJ20111112
finally, some bullish news.
For the dollar of course. Print my euro friends.
Well if Merkel "denies with great emphasis" it must be true.
The new Eurozone:
Deutschland
Holland (for weekends)
The Czech Republic (because they have earned it)
Poland (Ditto, and to keep the Commies at arms length)
Austria (Little Brother)
Denmark (bringing Iceland along, just to piss off the Brits)
Luxembourg (who cares)
Liechtenstein (just for laughs)
France (only if they agree to wear the choke collar on their nuts)
the vilifies chinese are the only ones with any ambition left. America used to be like that and should be again.
http://expose2.wordpress.com
Japan (becaue nobody does cosplay better)