Beijing, China: Newspapers Warn Of “Black Death” Impact From Euro Crisis

22 Aug

BEIJING (Reuters) – The “Black Death” of debt crisis across the Euro zone will hurt China by sapping demand for exports, although Beijing’s relatively small holdings of euro assets will limit any damage to foreign exchange reserves, the nation’s top official newspaper said on Monday.

The bleak diagnosis for the euro’s prospects appeared in the overseas edition of the People’s Daily, the top newspaper of China’s ruling Communist Party, in a commentary by a former central bank official and an economist for the state-owned China Development Bank.

Although the commentary in the People’s Daily does not reflect a definitive view from China’s top leaders, it suggests that the euro zone’s successive crises have stirred anxiety and debate in Beijing about the impact on China.

The commentary came days before French President Nicolas Sarkozy is due to meet Chinese President Hu Jintao in Beijing for impromptu talks that will probably focus on the recent turbulence in global financial markets.

“The euro debt crisis has now been going for nearly two years since the end of 2009, and the sovereign debt crisis has spread like the Black Death of the fourteenth century across the euro zone countries,” said the commentary, referring to the rodent-borne pandemic that devastated Europe.

“The spread of the euro debt crisis will not have as large an impact on our country’s foreign exchange reserves as the U.S. sovereign debt downgrade, because euro assets make up far less of our country’s foreign exchange reserves than the dollar,” added the authors, Zhang Zhixiang, a former head of the People’s Bank of China international department, and Zhang Chao, an economist for the China Development Bank.

“But the euro debt crisis will lead to a decline in real demand that will have a far-reaching impact on our country’s real economy,” they wrote.

About a quarter of China’s record foreign currency reserves of more than $3 trillion are held in euro assets, analysts estimate.

The 27-member EU bloc is China’s biggest trade partner, with bilateral trade in goods in 2010 reaching 395 billion euros ($570 billion), a rise of 13.9 percent, according to EU statistics. Chinese exports to the EU reached 281.9 billion euros in 2010, a rise of 18.9 percent on 2009.

Chinese leaders, including Prime Minister Wen Jiabao, have repeatedly expressed confidence that debt-laden European countries can overcome their problems and return to healthy growth.

During a visit to Germany in June, Wen said his country could buy the sovereign debt of some troubled euro zone nations if needed.

But the People’s Daily said the euro zone’s problems reflected deep-seated institutional failings that needed to be overcome for Europe to recover confidence and strong growth.

“The euro zone should reform the institutional constraints to economic development, and show a responsible attitude regarding the links between their countries’ and their region’s economic development and global economic and financial stability,” wrote the two economists.

(Reporting by Chris Buckley; Editing by Ken Wills)

NEWS UPDATE:

Former finance ministers were ‘intoxicated joyriders’

THREE former Fianna Fáil finance ministers were yesterday branded “intoxicated joyriders” for their role in incentivising speculative building and borrowing.

Speaking at the annual Michael Collins commemoration at Béal na mBláth in west Cork, founding president of the University of Limerick Dr Ed Walsh said Bertie Ahern, Charlie McCreevy and Brian Cowen had permitted uncontrolled expansion of the public sector, doubling the cost to the taxpayer.

“For electoral gain, they dislocated central government by attempting to dispatch parts of it to favoured regional constituencies,” Dr Walsh said.

“They eroded the tax base, appointed people of doubtful competence to public bodies, and ceded control in key areas to social partnership, resulting in public sector wages rising to the highest levels in the EU.

“They pursued votes and won an election by increasing social welfare payments to levels three times greater than those in Northern Ireland; making Irish jobseeker’s allowance greater than the average industrial wage in most of the EU accession states,” he told the crowd at Béal na mBláth.

Dr Walsh also criticised the role of the euro in Ireland’s economic woes: “Ireland entered and lost control of the two vital monetary instruments: setting interest rates and setting currency exchange rates.”

Dr Walsh said Michael Collins, were he around today, would put the fear of God into those who abuse their secure positions and fail to put Ireland first at this time of crisis.

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