China seeks higher ground in Europe By Francesco Sisci
BEIJING - It is clear, although little stated, that the present crisis in
Europe might be a blessing in disguise for the political union. In a matter of
weeks, all parties - previously hesitant if not in opposition to strengthening
the European Union - have started calling for stronger measures from Germany
(the strongest economy in the area) and Brussels to tackle the credit threat
and move toward closer economic, and thus political, integration of the
regional pact.
Voices from Britain, a member of the union but not of the euro, from America,
once suspicious of the political unity of the
European powerhouse, and from Germany, scared of its past ambitions to
continental dominance, are now a chorus pushing for faster and closer
integration of financial policies. These, paired with the already agreed upon
monetary union of the European Central Bank, could push for some de facto
greater political union.
Policies governing common taxation guidelines in fact touch on the basic
relationship between the government and the people, and thus are the fulcrum of
any political entity. The centralization of monetary and fiscal policies in
Brussels (the seat of the European Commission) or Frankfurt (the seat of the
European Central Bank) could quite easily also bring about the next
centralization of trade policies (already pretty much centralized), and thus
greater coordination in foreign affairs, and defense policy.
Here, there is a standing complaint from the ally America: at the beginning of
the bombing offensive against Libyan leader Muammar Gaddafi in the spring,
former American secretary of defense Robert Gates complained about the lack of
European defense spending. In fact, the Europeans are spending quite a lot on
defense overall; unfortunately, the European countries are spending each on its
own, with no unified continental policy. Then there is a huge dispersion of
resources and want of efficiency.
A greater political union could address all those issues.
Certainly, the political union still has a long way to go, and even the
measures to grant more power to the European institutions by subtracting that
power from the national parliaments are moving slower than market volatility.
This volatility threatens to make the markets tumble every week, pushing bond
yields of different European nations further apart. Then there is the concrete
possibility that a sudden spike in the markets could destroy the delicate
balance of Greece or Italy (the two countries financially most fragile at the
moment) before Frankfurt can muster the power to intervene.
Meanwhile, America, long a drag against the European political union, has taken
sides for a stronger union in Europe, as it realizes that a major disaster in
the old continent's markets would create a second, larger dip in the ongoing
financial crisis that would not spare the US.
However, there are two more elements that become extremely important to
determining future: the attitude of China and Germany's reconciliation of its
long- and short-term interests.
First, the German issue: Germany's long-term interest is in upholding the euro.
As former European president Romano Prodi put it, the stability of monetary
exchange in Europe made the present German trade surplus possible. Formerly, in
the times of the deutsche mark, once Germany had a trade surplus, its currency
would appreciate against the Italian lira or the French franc, and those
countries in turn would export more, undercutting future German surpluses.
Without national currencies, the different states cannot devalue against
Germany's greater industrial efficiency. Thus in the past years of currency
union, Germany has been able to gain large surpluses and a large amount of
capital to invest in Europe and in the world, expanding Germany's industrial
base. Then Germany has a keen interest in saving the union and even Greece and
Italy - or so it would appear.
In fact, these long-term interests clash with urgent and pressing short-term
ones. The hole in Greek finances was greatly unexpected, and Greek authorities
in the past year have not been very forthcoming in the assessment of their
situation, producing accounts that varied over time.
Social protests are swamping the country, and a necessarily costly European
salvation plan could stir up further protests and reveal more and deeper holes
in Greek finances. The same could also be true, and on a much larger scale, in
Italy. Then thrifty German taxpayers would be asked to bleed for the profligate
Mediterranean states, who might then feel encouraged by this rescue to continue
their profligate ways - and would be ungrateful for the aid and protest against
the new German oppression.
Then, Germany and Europe don't need just money; they need a higher political
message to bring the people together while on the brink of impending disaster.
Europe needs leaders with courage and a knack for telling their people straight
to their faces that Europe can have a bright future, as long as everybody, from
the north or south, is ready to take a stand and contribute his part in these
very difficult times, overlooking for a while their particular interests. This
is the great opportunity for Europe with this crisis.
And it is an opportunity for China, as well. The 1997-98 Asian financial crisis
was a golden chance for China: by stemming the tide of competitive
devaluations, China rescued itself and the rest of Asia, and it also
established for the first time a high international standing, above that of
Japan, then a larger economy, which almost succumbed to the financial
pressures. It did so without bargaining with anybody, but by remembering its
higher interests, which coincided with those of the region.
There are similar coinciding interests now between China and Europe. A deep
crisis in Europe could kindle a global economic recession and would end the
possibility of a European political union, something that could gravely alter
global political strategies. Both prospects could be dangerous for China in the
short and long term.
This should be China's greater interest, and this interest should create in an
unconditional support for the present European effort.
This support does not necessarily mean money. If Europe can't find the
political will to get its act together, there is no money in the world that can
do it for her. Europe needs global trust - that could help the future union
believe the whole world welcomes it and does not oppose it. China then should
not attach many strings to this help, which would defeat the purpose of the
aid. Of course, there is no free meal in this world, and Europeans can't
believe that China would offer help without hoping or implicitly asking for
something in return.
Yet China has offered help to Europe in a conditional way because most of its
domestic constituency feels uneasy about spending money on rich Westerners
while the poor Chinese still have to make sacrifices. However, the deep root of
this sentiment is the idea of a misalignment of interests between China and the
rest of the world.
This is a legacy of the time when Imperial China was and felt isolated from the
rest of the world. This is false now: a global economic crisis would not spare
China, and a political crisis in Europe would hurt China in many ways. With
foreign trade making up some 40% of its gross domestic product, China has no
barrier high enough against international turbulence.
The only real barrier against international contagions (economic or otherwise)
is taking an active role in international decisions and looking for the right
alignment of its own interests with those of the rest world, rather than always
playing a passive, conservative role that confines China to a corner.
This will require an overhaul of the Chinese mindset, almost a cultural
revolution in Chinese understanding and domestic management of international
affairs. The threat is that if China doesn't embrace it, China could become
more isolated politically and subsequently also economically.
This overhaul will be difficult. In 1997, China's defensive international
posture coincided with the requirements of the situation then: defend the Hong
Kong dollar and thus defend the other currencies from devaluation. Now China
needs to be pro-active, creative, and imaginative - something that is full of
risks domestically, as if something goes wrong, one or another faction will
jump in and take advantage. Yet, the long-term risks could be greater,
compromising China's future standing in the world.
Francesco Sisci is a columnist for the Italian daily Il Sole 24 Ore and
can be reached at fsisci@gmail.com
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