As riots broke out on the streets of Athens, the Greek capital, in June 2011, China voiced worries that the European crisis posed a threat to China’s “vital interests”.
The Chinese foreign ministry watched in dismay as thousands of Greek protesters clashed with riot police, fighting over the new round of austerity measures proposed by the beleaguered Papandreou goverment.
While many Greek citizens, feeling they have no financial future, have decided they have no option but to fight on the streets the government feels it is in an equally tight position since the EU and IMF are demanding higher taxes and cuts in public services in return for yet another multi-billion euro rescue package.
The problem for China’s huge economy is that Europe is its biggest trading partner. Just about every supermarket and hardware store in Europe sells goods made in China; every home uses Chinese products.
Following a visit to talk with European leaders by Chinese government officials in 2010, China was preparing to send the Chinese premier, Wen Jiabao, to Europe in June 2011 even as Greek hospitals were coping with dozens of dead and injured following the riots.
The Chinese Vice Foreign Minister, Fu Ying, told the press that European economic recovery was “vitally important” for China and the Chinese people.
Wen Jiabao will visit Hungary, Britain and Germany. On his 2010 trip he visited the heavily indebted euro nations of Portugal and Spain and the stronger country, France. On that trip he pledged aid to Europe to help the euro zone economies with their debt.
China already has something like three quarters of a trillion dollars invested in Europe. Although the Chinese government has 3 trillion dollars in foreign currency reserves, the Greek drama poses the question of whether China should buy yet more European debt. A Greek sovereign debt default would be bad for the world economy but, on the other hand, if the Chinese buy more European debt to help prop up the euro they risk being heavily exposed to the problems in the eurozone at a time when the very future and survival of the euro is in doubt.
Fu Ying pointed out that the Chinese government had already “increased holdings of euro debt and promoted China-European Union trade.” China had also bought Greek debt though the scale of their acquisitions has not been made public.
Like the IMF, China is clear that the eurozone must reduce its huge levels of unsustainable debt if the euro is to survive and the European economies are to recover. China’s central bank published a report in the same week that Greeks rioted, warning that the EU countries must reduce debt or face further loss of market confidence and even greater problems.
The European unity project, for many years central to German ambitions, is looking increasingly fragile. The economic and political faultlines, inevitable given the different national economies of Europe but meant to be papered over with a single euro currency, have stubbornly worsened since the beginning of the 21st century. There is an acute sense that none of the political leaders in Europe – or elsewhere in the world – know what to do about the euro, the eurozone and European debt. Should the European single currency be allowed to “sink or swim”? If the EU, the IMF, China and the world’s markets and investors stand back and watch Greece, then perhaps Spain and Portugal, default then the knock-on effect for the world economy will be grave. But if they keep offering rescue packages – bail out billions – and European debt is not reduced, then they’ll be throwing good money after bad.
Which is precisely why there’s a sense that all the leaders involved are undecided about what to do.
The populations of the eurozone countries figure in this drama as an unknown quantity for the political leaders. Debt can be reduced if Europeans accept austerity measures, higher unemployment, higher taxes and lower living standards. But will Europeans pay the price asked of them? Chinese and other leaders must be watching the news footage and press reports from Greece and saying “Maybe not”.