By Jonathan Stearns and Helene Fouquet - Oct 27, 2011 5:28 PM GMT+0700
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Chinese President Hu Jintao (R) welcomes his French counterpart Nicolas Sarkozy (L). Photographer: Eric Feferberg/AFP/Getty Images
Oct. 27 (Bloomberg) -- Guy Verhofstadt, member of the European Parliament and former prime minister of Belgium, discusses efforts to solve the debt crisis. European leaders persuaded bondholders to take 50 percent losses on Greek debt and boosted the firepower of the rescue fund to 1 trillion euros ($1.4 trillion). Verhofstadt speaks from Strasbourg with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)
French President Nicolas Sarkozy said he plans to call Chinese counterpart Hu Jintao today to discuss China contributing to Europe’s efforts to resolve the region’s debt crisis.
The European Financial Stability Facility will be worth about $1.4 trillion after European leaders agreed to leverage existing guarantees by as much as five times, Sarkozy said at a briefing in Brussels at 4 a.m. local time. The presidents will speak about noon Brussels time and Chinese support will be welcomed, he said. Jiang Yu, China’s foreign ministry spokeswoman, said Beijing is ready to work with Europe to stabilize markets.
Sarkozy’s outreach precedes a Group of 20 summit he will host next week, and coincides with European efforts 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.
“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.”
Greek Debt
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.
Sarkozy and Hu’s conversation comes 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 currency reserves at more than $3.2 trillion.
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.
‘Normal’ Discussion
“It is a normal round of discussion with important buyers of EFSF bonds,” Christof Roche, spokesman for the Luxembourg- based facility, said by e-mail yesterday. He declined to comment further when contacted by Bloomberg News by telephone. Agence France-Presse reported that Regling will travel on to Tokyo, citing a European Union official in Asia.
Jiang, the Chinese foreign ministry spokeswoman, didn’t give details of how China might work with the EU.
China “welcomes’’ the agreement reached by EU leaders, Jiang said at a regular press briefing in Beijing. “It is conducive to lifting market confidence.’’
The European Union must ensure the safety of China’s investments, the official Xinhua News Agency reported today, citing Wang Hua, an official in the Western Europe division of the International Department under the Communist Party’s Central Committee.
A press official at the People’s Bank of China said he wasn’t aware of the issue and asked for faxed questions, which weren’t answered. Calls to the press office of China Investment Corp., the nation’s $300 billion sovereign wealth fund, weren’t immediately answered.
American Angst
Europe is facing international calls to end a debt crisis that President Barack Obama has said “is scaring the world” and U.S. Treasury Secretary Timothy F. Geithner has described as a “catastrophic risk.”
With the G-20 leaders gathering in Cannes, France, Nov. 3- 4, euro-area government heads gathered in Brussels yesterday for the 14th time to tackle troubles that began in Greece two years ago, then engulfed Ireland and Portugal and now threaten Spain and Italy.
Premier Wen said last month that while China was willing to help, developed nations also needed to put “their own houses in order.”
In Canberra today, Australian Treasurer Wayne Swan echoed that sentiment. “In the first instance, any bailout fund in Europe is a responsibility of the Europeans,” he told reporters. Swan said in a statement later that global markets will demand details of the European plans. “Europe is building its war chest, but the war has not yet been won,” the statement said.
Stocks rose in Asia after the euro-region meeting, with the MSCI Asia Pacific Index advancing 3 percent, the most in more than three weeks.
Pudding Test
“This morning we saw broad positive reaction from the market -- but as they say, the proof of the pudding is in the eating,” Amando Tetangco, governor of the Philippine central bank, said in a mobile-phone text message to reporters today.
Bank of Korea Governor Kim Choong Soo said his nation hasn’t been approached and hasn’t considered joining the European financing effort. Indonesian Vice Finance Minister Mahendra Siregar said his country also hasn’t been asked to contribute. Japan’s Finance Minister Jun Azumi said the European statement today was a “big step forward,” speaking at parliament in Tokyo.
The question of leveraging the AAA rated EFSF has arisen because of the political hurdles in countries such as Germany, the biggest European economy, to increasing the national guarantees that back the fund.
Japan’s Ante
As part of its original role, the EFSF is providing 17.7 billion euros under Ireland’s aid package of 67.5 billion euros and 26 billion euros under Portugal’s rescue of 78 billion euros. So far, the EFSF has sold two five-year bonds and one 10- year security, all in the first half of this year. The Japanese government bought more than a fifth of the inaugural issue in January.
On Oct. 13, the EFSF announced changes to its bond-sale program for the two countries in the second half of 2011. Instead of selling four “benchmark” bonds in the period, as outlined in mid-May, the fund will sell one security for Ireland valued at 3 billion euros and delay issues planned for Portugal until “early 2012.”
The EFSF may have to finance more than 70 billion euros of a planned second aid package for Greece. The initial Greek rescue of 110 billion euros in May 2010 was composed of loans directly from euro-area governments and the IMF.
To contact the reporters on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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