Friday 30 April 2010


WHY CHINA IS THE KEY TO EUROPE'S DEBT CRISIS
A Greek bailout is only the first step to a solution

The Australian, April 30, 2010

BEIJING, not Berlin, holds the long-term solution to Greece's economic crisis. Yet while Germany will eventually be forced to help bail out its European Union partner, there is scant evidence China will come to the party any time soon. Instead, Greece, not to mention the rest of Europe, and in fact the rest of the world, will remain vulnerable to the huge global imbalances of savings and debt that lie behind the crisis, and which Beijing must now address.

The immediate causes of Greece's travails are, of course, years of economic mismanagement and lack of productivity, plus a gaming of the eurozone's rules on debt and deficit levels that allowed the government to keep borrowing its way out of trouble. Blame Brussels. Blame the euro. Blame Goldman Sachs. All played their part in the story that ends with Greece drowning under debt of E300 billion, a debt-to-GDP ratio of 124 per cent, and a budget deficit of 13.6 per cent of GDP. Without the constraints of a single European currency, which denied Athens the option of adjusting the drachma to help work its way out of the crisis, and without Wall Street providing camouflage via derivatives for the country's failure to meet EU targets, Greece may have stopped the rot. But look elsewhere for the deeper cause of the turmoil: to the oceans of cheap money available to a struggling economy that blithely piled up debt rather than attack the fundamental flaws in its system. That availability of cheap credit was underpinned in large part by a China determined to keep its currency low enough to generate a massive market for its exports and then happy to recyle that surplus back to the US and the rest of the world to fund excessive spending. China's currency fix created growth that lifted hundreds of millions of its people out of poverty in recent years. There are many hundreds of millions more waiting for a similar transformation. Thus China's logic collides with the global demand for a rebalancing of debtor and surplus economies. This is not to deny the part played by the US in contributing to these imbalances, as it continues to run a large budget deficit.

(...) [artículo aquí]

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