Saturday, October 29, 2011

No Go On EU Bailout Plan

The head of the European bailout fund has dampened hopes that China will come to the rescue of the debt-stricken EU, but has left the door open for a deal with the world's second-biggest economy.
Klaus Regling's

Expectations for a strong commitment from China had been high ahead of Klaus Regling's visit to Beijing, with the Financial Times quoting a source saying a cash injection could top $US100 billion.

But publicly the government has been noncommittal and Chinese state media has said that Europe must take responsibility for the crisis and not rely on 'good Samaritans' to save the continent.

'There is no special deal' with China, Regling said yesterday during a visit to Beijing for talks with China's central bank and finance ministry a day after European leaders reached a last-ditch agreement to tackle the region's worst crisis in decades.

There have been calls from Europe for China and other developing economies to invest in the bailout fund, and there has been intense speculation that Beijing will agree to deploy some of its huge foreign exchange reserves.

But bailing out developed European countries would be a hard sell for the Communist leaders of a country where soaring housing and food costs are hurting millions of poor households and many exporters are struggling to pay bills.
Nicolas Sarkozy

Hours after Thursday's deal was struck, French President Nicolas Sarkozy telephoned China's President Hu Jintao, later giving a television interview in which he defended the idea of asking China to bail out Europe.

 'If the Chinese, who have 60 per cent of global reserves, decide to invest in the euro instead of the dollar, why refuse?' said the French president.
Hu Jintao
Regling, chief executive of the European Financial Stability Facility (EFSF), insisted the timing of his visit was not significant, calling the talks 'regular consultations' on China's investment in European bonds.

But he said the EFSF was looking at new ways to secure new investment, speaking after EU leaders announced measures including quadrupling the firepower of the fund to one trillion euros.

So far the only way we asked for investors to participate (in the bail-out fund) was by buying bonds. There was no other instrument available so far,' Regling told a media briefing.
 'Now, we may have new instruments... and we will see who participates in these instruments.'

Regling said he would discuss with China and other investors how to structure a special purpose investment vehicle and would explore the possibility of linking it to the International Monetary Fund, though 'nothing has been decided'.

China, which has 3.2 trillion dollars in foreign exchange reserves, was 'interested in finding attractive, solid, safe investment opportunities,' Regling said.

His comments came as China's vice finance minister welcomed the EU agreement on measures to address the debt crisis and said the country was still considering whether to invest in the bailout fund.The fund was set up in May 2010 and is designed to provide financial assistance to European economies at risk of default, such as Greece, Ireland and Portugal.

Regling will travel on the weekend to Japan, which on Friday offered vague promises that it will help Europe, but left itself a week to decide what it might do to expand its already hefty contribution to the EU's bailout fund.

China has already invested significant sums in European bonds and has repeatedly called on Europe to address its debt crisis, saying a failure to act risks dragging the world back into recession.

Chinese state media have reported that the country is willing to contribute to the EFSF, but there has been no official confirmation and Beijing has given little indication of how it might be prepared to help.

On Thursday, Beijing cautiously welcomed the European deal and reiterated China's 'faith in the EU and the eurozone economy'.

But a commentary in an influential Chinese newspaper Friday said that although the deal eased market concerns -- setting off a rally on global bourses -- it did not address the root cause of the problem.

'The summit did not reach any decision on institutional reform and therefore did not eliminate concerns over the (causes of) the European debt crisis at the root,' said the column in the People's Daily, seen as the mouthpiece of the Communist Party.

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