Poor old Europe: it just goes from bad to worse. Already sore from being brutally sidelined during the Copenhagen summit last year, it now faces this addition of insult to injury:
Greece is wooing China to buy up to €25bn of government bonds, a move that underlines Beijing’s increasing financial power, as Athens struggles to fund soaring public debt. Goldman Sachs, the US investment bank, had been promoting a Greek bond sale to Beijing and the State Administration of Foreign Exchange (Safe), which manages China’s $2,400bn foreign exchange reserves, said people familiar with the issue.
That’s what the FT reported yesterday, and the news immediately set pulses racing in Brussels and Frankfurt. As Unicredit’s chief economist put it to the FT a day later,
For the eurozone, “a member country implicitly rescued by China would be an even worse signal than an IMF programme”.
But even worse, China then signalled they probably didn’t want Greece’s ropey debt anyway. Yu Yongding – who’s not only a senior member of the Chinese Academy of Social Sciences but was also a member of the Canadian-run L20 project back in the day (and hence a sort of Chinese government-licensed public intellectual on global affairs) – commented yesterday that,
It is unreasonable for an economist to support a diversification away from an unsafe asset class to a much more unsafe asset class. Let European governments and the European Central Bank rescue Greece.
Cue predictable carnage as the markets digested this news: stocks immediately fell 4%, according to the WSJ, and bond investors demanded a record spread of 3.70% between Greek 10 year bonds and the benchmark 10 year German bonds. But the events of the past couple of days are also an interesting little microcosm of larger issues, some of which are these. (more…)