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Friday, 28 October 2011

There are no funds yet reserved for the larger EFSF rescue fund. Will China also here come to the rescue?

There are no funds yet reserved for the larger EFSF rescue fund. Will China also come here to the rescue?
It’s China day today. This most powerful member of the BRIC-countries is not only wanted as a lender of last resort for Swedish car brands in need, but also for the freshly expanded and leveraged EFSF emergency fund.
What I didn’t print in my yesterday post on the Euro rescue is that Europe is especially looking in Chinese direction for coughing up the necessary funds in the leveraged €1000 bln EFSF. The investments in sovereign or bank bonds sold by the EFSF, would be warranted by a 20% investment loss guarantee of the EU member states.
Suffice it to say that China is not jumping for joy to help its best customers, the European Union, with its ‘black hole’ EFSF investment fund. However, the country is probably willing to think about it, if Europe could help to ‘fill in a few minor details’.
And what are does details probably:
·    Growing influence of China in the IMF that is now dominated by Europeans (see the recent election of Christine Lagarde as chairman of the IMF).
·    Removal of trade barriers on the import of Chinese electronic equipment.
·    Removal of barriers for the purchase of European / American weapons systems
·    Removal of other possible EU barriers for the take-over plans of China in European countries.
·    Europe talking with a less loud voice about human rights in China and showing a more friendly face.
As these details probably need some heavy swallowing at both sides, China and Europe act like two people in love, both waiting who is going to make the first move.
And then you get funny stories in the news that Klaus Regling, the head of the EFSF emergency fund, is visiting China ‘to drink coffee’ with the leaders, but that there are no official negotiations going on.
Here are the pertinent snips of two articles in the Financieele Dagblad ( and Business News Radio (
China didn’t make any concrete commitments to invest in the European emergency fund. This is stated by the chairman of the EFSF this, German banker Klaus Regling.
Regling is visiting Beijing to persuade the Chinese government into an investment in the European emergency fund, that was renegotiated on the summit of the European leaders last Wednesday (October 26). Concrete commitments of China stay out. Regling states that he doesn’t expect an ‘exact result’ of his visit. He does expect, however, that China will continue purchasing bonds of the EFSF.
Regling denied that China can count on special conditions for the purchase of these bonds. Beijing would also not have asked for special concessions in exchange for its support for the Euro-zone.
China is looking for possibilities to reinvest its currency surplusses. The EFSF offers commercially interesting possibilities, according to Regling. China possesses the largest supply of foreign currencies in the world, to the amount of $3200 bln.
This article contains at least two blatant lies, that should award Regling with the Golden Pinocchio. Lie 1: China would not receive special conditions, while purchasing large amounts EFSF bonds. Lie 2: China would not have asked for special concessions. Sadly this award doesn’t exist yet:
Golden Pinocchio. Picture courtesy of
China is not investing money in the EU emergency fund yet and there are no formal negotiations going on. According to the Chinese, Europe is not solving the real problems with its current approach of the European debt crisis.
The People’s Daily, official newspaper of the Chinese Communist Party, stated in an editorial that the EU agreement on the approach of the debt crisis might stabilize the markets, but doesn’t solve the real problems.
Only when Europe reforms its institutions, it can regain the trust and aid of other countries.
There is not a single, unclear word in this Chinese statement. And of course, the Chinese are totally right here. But that doesn't mean that the Chinese are not negotiating with Europe.
Kees de Kort, the savvy macro-economic columnist of BNR, however, does think differently about Chinese intervention and stated today on his Dutch blog that China is often used as a carrot for the stock markets to get everybody happy.
A game that the powers-that-be learn to play better every day, is the manipulation of the optimistic stock investors (in his exact words ‘the people with the pink glasses and the rosy view’) at the financial markets.
They understand better every day which carrot needs to be hung down for the markets. Fixed part of this game is the word ‘China’. The word has been mentioned for at least ten times during the last few months and every time the ‘pink glasses’ were running the gauntlett. The story is totally useless, but the word is used over and over again.
I feel sorry for my English readers that they can’t enjoy the every day ‘acid attack’ of this very intelligent and outspoken columnist. And very often he is right. Maybe again this time.
Whatever the outcome of the EFSF negotiations with China will be; it will be tough negotiations and the price to be paid by Europe will be considerable. To be continued…

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