China as J.P. Morgan Might Have to Save World

[Renew Deal]

China and the U.S. finally found something to agree on: Europe is doomed and might take the world’s two biggest economies down with it.

Neither officials in Beijing nor Washington are actually using the “D word.” They don’t need to, not with Zhou Xiaochuan, China’s central bank governor, talking matter-of-factly about emerging nations bailing out the euro region and U.S. Treasury Secretary Timothy Geithner warning of “cascading default, bank runs and catastrophic risk” there.

The price tag for keeping the Greek-led turmoil from killing the euro is rising fast. Asians are so anxious about it that they’re querying Americans -- like me. In my travels around the region this month, I’ve faced a harrowing question: Would U.S. President Barack Obama chip in for a giant European bailout?

It’s hard to decide what’s more disturbing: the obvious answer -- over Republicans’ dead bodies -- or the fact it’s being asked at all, and by whom. Among those posing it were the finance minister of one Asia’s biggest economies, the central bank governor of another and a number of major executives.

Amid all the doubt and despair, here is one thing we do know: Keeping Europe together, if it’s even possible, will be monumentally expensive. Christine Lagarde’s International Monetary Fund is supremely out of its league. Its $384 billion lending chest would barely be enough to save Greece, never mind Spain or Italy. The IMF needs a bailout.
<snip>

http://www.bloombergview.com/articles/2011-09-27/china-as-j-p-morgan-might-have-to-save-world-commentary-by-william-pesek

[TooPragmatic]

1. I respectfully disagree

I've read Mr. Peseks articles sometimes and his knowledge about the Asian economies is better, although he likes to use a negative tone when it comes to his articles. On the situation in Europe he seems to be quite wrong.

Firstly, the Greece elections were just held and the final deal is yet to be known. Most likely the EU will offer extensions on the debt payment, but cuts on the debt most likely will be off the table.

http://www.reuters.com/article/2015/01/26/us-greece-election-eu-oettinger-idUSKBN0KZ0J120150126|]
http://www.theguardian.com/world/2015/jan/26/greece-anti-austerity-government-alexis-tsipras|]

In my opinion it wouldn't be wise to allow cuts on the debt since there are many areas where Syriza can make changes. For example They could do something that previous governments haven't be willing to do such as really tackle on tax evasion, introduce taxes on shipping, attacking corruption and perhaps even tax the church.

http://greece.greekreporter.com/2014/10/12/two-out-of-three-greeks-commits-tax-evasion/]
http://www.wsj.com/articles/italy-and-neighbors-struggle-to-tackle-tax-cheats-1421969741|]
http://www.ibtimes.com/greek-economy-mend-shipbuilding-one-its-oldest-industries-final-collapse-1566846|]
http://www.theguardian.com/world/2011/oct/04/greece-orthodox-church-economic-crisis|]
http://www.nytimes.com/2014/10/17/world/europe/immunity-provisions-cast-doubt-on-greeces-efforts-to-fight-graft.html?_r=0|]

It is also important to note that there is no longer a severe contagion risk as there was because most of the debt owned by Greece is to the ECB, IMF, EFSF and individual European countries. And the conditions of those loans are far better than market rate loans. In 2014 Greece's interest payments where 4.3% of GDP. That is less than Italy and Portugal and not that far from many other countries. So not paying their debts would hurt other European countries and their citizens, not the banks.

www.socialeurope.eu/wp-content/uploads/2015/01/OP6.pdf
http://blogs.telegraph.co.uk/finance/matspersson/100015389/in-2015-85-of-greeces-debt-will-be-owned-by-european-taxpayers/|

There are risks of the Euro and the EU collapsing, but Greece alone won't do that. It depends ultimately on the outcome and consequences of how Greece will be handled and how the voters in other EU and Euro countries react. Spain, Portugal, Finland and the UK will have Parliamentary elections and Italy will have presidential elections. These I would consider important elections as they will all reflect partly on the outcome of the negotiations involving the Greece debt relief. If Greece leaves and Spain or the UK follows, there could be serious damage in Europe.

But I also think that China wouldn't be that good of a partner anyways. Here is an article by fellow View writer Mac Margolis on China in Latin America.

http://www.bloombergview.com/articles/2015-01-25/china-s-turn-to-gouge-latin-america|

[Demeter]

2. This will be interesting

I sincerely doubt that China has an interest in doing the heavy lifting for the EU, ECB, and IMF, whose stupidity brought this situation to a crisis. China has enough problems of its own, and throwing money at Europe will not fix its problems, which are due to stupid policy decisions.

Unless China thinks it can get the EU into a fiscal form of slavery....that might work for them.

And I know that the GOP Congress will have none of it.

[mazzarro]

3. This is an old article of 09/27/2011 - comment needed as to the purpose for recycling it -- n/t