SINOGRAPH Good reason to red-carpet
Merkel By Francesco Sisci
BEIJING - If a political Europe is ever to
be born, its conception will have been in Beijing
last week, during the visit of German Chancellor
Angela Merkel. Within a period of about nine
months, the gestational period for humans, we
shall know if this new polity will be really born
or we shall witness a miscarriage or an abortion.
In the Chinese capital, Merkel, in fact,
spoke as the head of a European government, not
simply as the leader of one EU
member state; and indeed
China, long fond of the political European Union,
treated her as such.
China was interested
in how the euro and Europe, perhaps politically
united, might be saved. Merkel satisfied these
concerns, pledging that the euro will not
collapse. She thus implicitly admitted that
Germany would step in to avoid gruesome disasters,
which could ensue if major economies, like Italy,
defaulted on their debts. This possibility is far
from remote as some 300 billion euros (US$393
billion) of Italian bonds will be auctioned this
year.
The pledge was required by Beijing
to guarantee that China will not run away from the
European bonds it already holds. In any case, not
all Europe is the same. In the whole basket of
European bonds, the German ones will be the
favorites. This is also for a very practical
reason: Germany alone makes up about half the
European balance of trade with China.
This
fact was reinforced also by German attitude in
China. All EU countries speak for themselves and
for the EU as a whole in China. Yet naturally
Germany, the largest and most important economy in
the union, is taken more seriously when doing so.
This Chinese perception of Germany's strength in
Europe and its interest in Beijing is further
reinforced by the fact that the present ambassador
of the European Commission in China is German, and
he was strongly supported by Merkel.
But
if Germany is Europe in China, it must be Europe
also at home and in the world. The political union
around Germany should be only a matter of time and
details. Here, in the details, we know lodges and
thrives the devil.
Despite the overall
commitment, the present uncertainties in Europe
prompt caution in China, where there is no rush to
sell US bonds and buy European ones. In fact,
notwithstanding its US$3.2 trillion of reserves,
China knows it cannot attempt to save Europe. The
Old Continent must save itself with a clear
commitment and effective action from Europe
itself.
Until here, Germany and China
appear to have an entente cordiale almost made in
heaven. From this point onward, however, the
Chinese and European roads diverge.
The
Chinese would like to see a major and quicker
German effort in Europe, scared that any delay
could increase the likelihood of accidents. Berlin
has conversely so far preferred to push
"delinquent" EU members with brinkmanship,
threatening to let them go bust unless they move
to reform their failing economies, and thus
flaunting the anger of the average thrifty German
taxpayers against the profligate southern European
brethren like Greece, Portugal, Ireland, Spain and
Italy (the infamous PIIGS). That is, Berlin has so
far stated its confidence in managing the pace of
reforms in Europe without fearing accidents. The
problem is: how can one be so sure?
If
this is the German stand, China is reluctant to
stick too many of its reserves for Europe, even
for virtuous Germany. How can China trust
countries bundled in Europe, say some of the
PIIGS, that Germany, the EU leader, claims to
mistrust?
Therefore Chinese do not rule
out International Monetary Fund intervention in
the eurozone to build a firewall to protect the
euro against market speculation. But this firewall
should be for the 80-90% made up of European
funds.
The statement by Chinese Premier
Wen Jiabao last week, at the joint press
conference with Merkel, was clear in this sense:
"China is considering [ie has not decided on]
increasing its stake in resolving the debt crisis
through the channels of the European Stability
Fund and the ESM", referring to the European
Stability Mechanism, due to come into force in
July.
According to Chinese economists -
who are apparently in agreement with the Americans
- the firewall of the euro should be around 1
trillion euros (US$1.3 trillion), about twice what
is available today, to create the stability fund.
This means that Germany should first increase its
commitment in this regard.
In any case,
even the Chinese consideration was already a
concrete result for Merkel and the euro. After the
vague statements indicating China's willingness to
back up the euro, the European currency regained
value against the dollar and the yen while the
interest spread between some major European bonds
dropped.
In this case, Merkel's journey to
Beijing managed to buy time for eurozone countries
to fix their balance sheets, lowered the pressure
of rising spreads, and pushed Germany to come out
in the open about its intentions to save Europe.
The German commitment in Europe, in any
case, is not total or unconditional. There is
still the possibility that some countries might
exit the euro. So for China, partnering with
Germany in Europe is the least risky bet.
In China, there is also great admiration
for Germany. Berlin, according to many Chinese,
proved its mettle when it was the first of the
major developed countries to get out of the 2008
economic crisis.
These elements, then,
drive Chinese interest in direct investment in
Germany, home to technologies important for the
future development of China. For example, its new
fast railways are being built with German magnetic
levitation technology. This attention is
underscored by the fact that Wen in April, in just
two months, will go to Germany for the Hannover
industrial fair.
This success in China in
turn could be a vote of confidence but also a
burden for the yet-to-be-born political Europe.
Germany is certainly the leader of the future
political Europe but it can't be the entire
Europe, Germany can't ignore this, as other
European countries can't ignore the special role
of Germany in China, the second-largest economy in
the world.
Therefore the decisions on
Europe can't just rest on the shoulders of wise
Germany, and Germany should also consider some of
the concerns of its profligate brethren, who with
their debts helped to boost German coffers. Then
they all should decide quickly what kind of Europe
they want, otherwise a miscarriage will be almost
certain or a deformed child will be born, a
disaster for Europe and 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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