China to Help Fund Latest EU Bailout Package? No Deal

By | October 28, 2011

French President Nicolas Sarkozy placed a phone call to China’s President Hu Jintao after European leaders reached another last-minute deal to increase bailout funding in an attempt to tackle the regions worst debt crisis in over two decades. Apparently, Sarkozy’s pleas for China to contribute upwards of $100 billion (U.S.) to the EU bailout fund fell on deaf ears, as China’s refusal to buy EU bonds was reported early Friday morning, much to the dismay of the Global media that had been reporting that China would be buying upwards of $100 billion dollars worth of the EU’s bonds.

 

 Sarkozy attempted to woo public opinion and apply Global pressure by taking to the media in an interview right after his phone call to China’s President in which he stated:  “If the Chinese, who have 60 percent of global reserves, decide to invest in the euro instead of the dollar, why refuse?”  The answer to that question can be found in China’s state media announcement that Europe must take responsibility for the crisis and not rely on “good Samaritans” to save the continent.  Maybe China simply sees the U.S  as a good investment, and the EU..not so much.  China currently holds approximately $3.2 trillion dollars in foreign exchange reserves and was looking for “attractive, solid, safe investment opportunities according to Claus Regling, the chief executive of the European Financial Stability Fund. (EFSF) Mr. Regling is currently on a world tour talking to governments about how the EFSF might be structured so the EU bonds it sells to make money will look “more attractive” As Communist leaders in China try to deal with soaring housing costs and food prices while exporters are struggling to stay afloat, selling EU bonds to China right now is off the table.

The EFSF has already “announced” an increase of some measures including quadrupling the firepower of the fund to one trillion euros ($1.4 trillion). Now the main problem is just where that cash infusion will come from. As stock markets rallied on the recent news of the EU bailout fund quad-rupling, the EFSF is seen to be scrambling to raise the funds.  Isn’t that akin to be placing a bet on an as yet unfunded entity?  China certainly thinks so.

The EFSF 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. Here we  some 17 months later, and the crisis is now looming larger than ever. Next up on Regling’s EU bailout begging tour is Japan, whom as also offered “vague promises” ( just like China in the beginning) that Japan might be willing to expand it’s already large contributions to the EU’s bailout fund. We can expect Japan to take the route China has in refusing to bury itself in the EU bailout debacle simply because, as The People’s Daily Communist media outlet in China stated: “The (EFSF) 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.”

Adding to the fact that the EFSF has apparently promised a $1.4T cash infusion into the EU bailout fund without first securing the actual funding, is that, as is usually the case, China will want to put certain “conditions” on their participation in buying EU bonds to increase the EU bailout fund. Those conditions: Greater market access in Europe and silence on their currency manipulation which most economists say is being unfairly undervalued. That tidbit comes to us from IHS Global Insight analyst Ren Zianfang.  Didn’t the U.S. Senate recently pass legislation calling for sanctions against China for undervaluing their currency? Yes they did, as you can see here.

In another shocking revelation, (sarc) also on Friday, a deputy Chinese finance minister said Beijing needs to learn how the new investment vehicle will work before deciding whether to invest.

China wants details on the amount of bonds issued by Italy and other individual European governments that might be guaranteed by the fund, Zhu Guangyao said at a separate briefing. Oh the nerve of those Chinese, wanting petty “details” before committing another $100T to the EU bailout fund!

So the Global market rallied on the EFSF’s recent announcement that they will quadruple the EU bailout funding. All they need to do now is find the money to put into the fund. What a dysfunctional mess of an organization. This is a grand example of how the EU Global government has become so involved with the European banking system that it has exasperated the European financial crisis tenfold, and instead of helping European countries to pull out of the recession, it now threatens to drag the U.S. and the rest of the world down with it.

 

 

 

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