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China Looks at Life After Euro

Analysis by Antoaneta Becker

BEIJING, Nov 8 2011 (IPS) - If Chinese detractors of liberal democracy and unbridled market development ever needed more fodder for their attacks on the West, then last week’s Greek farce provided plenty. But behind the headlines announcing “the collapse of Europe” there is little sense of ideological triumph. Instead Beijing is busy drawing up contingency pans for the break up of the eurozone and absorbing the lessons of welfare state excesses.

Beijing – often at the receiving end of criticism that in its attempts to preserve social stability above all it often tramples on civil rights, did not miss a chance to deride Brussels for its “mantra of stability”.

“The collapse of Europe is irreversible,” declared an editorial in Monday’s 21st Century Business Herald. Rather than admitting that Greece was bankrupt and would never be able to repay its debts, it said Europe had instead “thrown its principles out of the window.”

“Stability prevails over principle” was just another sign of the “degradation of the European spirit,” the editorial said.

Not long ago it was Brussels that lectured Beijing on its economic management, but now Chinese leaders see it as their duty to admonish the European Union. Even before last week’s Cannes fiasco and its public display of the EU’s inability to follow through on the rescue plan of the eurozone it had painstakingly designed, Chinese premier Wen Jiabao had issued some stern warnings.

“The most urgent task is to take decisive measures to prevent the debt crisis from spreading further and avoid financial market turbulence, a recession and fluctuation in the euro,” Wen told European Council President Herman Van Rompuy in a phone call two weeks ago. In marked contrast with Beijing’s repeatedly voiced confidence that Europe can overcome its problems, Wen’s comments sounded sobering.

“Apart from urgent measures to address these problems, the key is to undertake systematic and fundamental fiscal and financial reform,” Wen said, according to a report on the Chinese Foreign Ministry website.

But after the Cannes meeting Beijing seems to have lost its confidence that Brussels has what it takes to undertake the fundamental reforms needed. The Cannes G20 summit originally designed to put the final touches to Brussels eurozone rescue plan and entice emerging economies like China to dip into their foreign currency reserves and provide capital for Europe’s bailout fund unravelled with the Greek prime minister’s announcement then that he needed a national referendum to approve the bailout programme.

The summit concluded last Friday without any concrete results. Even though Greek Prime Minister Papandreou withdrew his referendum idea later, and after he won a parliamentary vote of confidence, the damage had been done. The political uncertainties meant that neither China nor any other country could agree to join the European bailout.

To say that Chinese analysts have been perplexed at what transpired at the G20 Cannes summit is an understatement.

“If a small country like Greece with an economy that accounts only for 3 percent of the EU’s economy can derail the whole union and kidnap a summit of the world powers, this says something about the deficiency of the EU’s political and economic integration,” says current affairs commentator Xia Wenhui.

Comparisons were being made with the unification of the Chinese empire under the first Chinese emperor Qin Shihuang (259 BC – 210 BC), pointing out that he first unified the different warring states politically before imposing a common currency. The comparisons were not flattering to Europe.

While before the Cannes summit the focus here was on the pros and cons of China buying more euro debt, now attention has shifted to crisis prevention. TV commentators are warning that if a new “financial tsunami” is coming, China should be busy strengthening its dykes and bracing for the onslaught of a new recession.

Beijing’s export-led model of economic growth depends on European markets, and the euro bloc’s crisis has already taken a toll on Chinese factories churning out goods for export. The impending recession in Europe would mean more pain for Chinese manufacturers.

China holds about a quarter of its 3.2 trillion dollars of foreign exchange reserves in euro assets. If the eurozone collapses, Beijing’s stake in its biggest trade partner would be at peril.

But the Greek crisis has also provided Beijing with some valuable lessons on how to proceed with its own social welfare reform.

“We have to be mindful that with our population size and the huge number of retired people in the future, the pensions have to be adequate,” said one government official who spoke on condition of anonymity. “If China’s economy falters and we are not able to pay those social benefits, then the crisis here will be of much bigger scope than what we see in Greece.”