Excerpt from Jonathan Steams and Helene Fouquet | October 27, 2011 | bloomberg.com |
French President Nicolas Sarkozy conferred with his Chinese counterpart Hu Jintao as European policy makers seek to build support for an enlarged rescue fund designed to resolve the region’s sovereign-debt crisis.
Hu hopes that the measures will help to stabilize markets, state-owned China Central Television reported. The phone call between the leaders came hours after a euro-region summit ended with an agreement to boost the European Financial Stability Facility to about $1.4 trillion, leveraging existing guarantees by as much as five times. Japan plans to support the increase, and is waiting to hear from European officials on details for the program, according to a person familiar with the matter.
Sarkozy’s outreach precedes a Group of 20 summit he will host next week, with Europeans seeking to bolster the role of the International Monetary Fund in overcoming the euro-region’s woes. Australia’s finance chief said that while it’s “appropriate” to look at the IMF’s resources, Europeans must look to themselves first for bailout money.
“The Europeans have their back against the wall and China is the lender of last resort,” Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong, said in a Bloomberg Television interview before Sarkozy’s call.
The French president’s office said in a statement that Sarkozy and Hu “agreed to cooperate closely to ensure the G20 can make a decisive contribution to ensure growth and global stability.”
Greek Deal
Chinese Premier Wen Jiabao has signaled willingness to aid the European Union as financial turmoil within the region threatens to crush export demand in China’s biggest market. The expansion of the rescue fund and a deal for bondholders to take 50 percent losses on Greek debt may help Sarkozy and German Chancellor Angela Merkel to convince the world that Europe is getting to grips with the crisis.
“China will need time to evaluate this plan very carefully,” said Shen Jianguang, a Hong Kong-based economist for Mizuho Securities Asia Ltd. “What worries China is that there is so much disagreement among European policy makers. It doesn’t want to be seen spending money on a plan that even Europeans don’t want to support.”
Sarkozy and Hu’s conversation came a day before a planned visit to Beijing by Klaus Regling, chief executive officer of the EFSF, to court investors. China has the world’s largest foreign-exchange reserves at more than $3.2 trillion. Regling is also scheduled to visit Japan, Agence France-Presse reported, citing a European Union official in Asia.
Japan Waiting
Japan, the world’s second-biggest holder of currency reserves, anticipates waiting until November for specification of how it may be able to help Europe, a person familiar with the matter said on condition of anonymity because discussions on the matter are private. Finance Minister Jun Azumi said the European statement today was a “big step forward,” speaking at parliament in Tokyo.
The EFSF, established last year to sell bonds to finance loans for distressed euro nations, has since also gained the authority to buy sovereign bonds on the secondary and primary markets, offer credit lines to governments and recapitalize banks as the Greece-triggered debt troubles have spread. The EFSF said Regling’s visit to China this week is linked to the fund’s original debt-issuance role.
Read more at: bloomberg.com
