Thursday, August 30, 2012

China is one of the drivers behind Germany's stance on periphery bailouts

China has been pressuring Germany to get the Eurozone crisis under control. Many in China blame their sharp economic slowdown (see discussion) on the Eurozone crisis - because if it wasn't for the Eurozone, the double digit growth that made so many of China's bureaucrats rich would last forever... And some of the same people believe that China's growth will re-accelerate once the crisis in Europe has been resolved.
Wen Jiabao: - The European debt crisis has continued to worsen, giving rise to serious concerns in the international community. Frankly speaking, I am also worried.

The main worries are two-fold: first is whether Greece will leave the eurozone...The second is whether Italy and Spain will take comprehensive rescue measures. Resolving these two problems rests with whether Greece, Spain, Italy and other countries have the determination for reform.
Angela Merkel on the other hand wants to comply with China's demands. There is a great deal at stake as German trade deficit with China has basically disappeared this year - for the first time since the 90s. Germany can not afford to jeopardize its sales to China which have been a key driver of Germany's export growth.

Source: GS

Merkel, having asserted her leadership in the Eurozone by completely dismissing Grexit and by supporting ECB's plans to bail out periphery nations, is now in a position to tell China that Germany is doing all it can. Her visit to China was well timed. When people try to understand Germany's about-face with regard to the periphery bailouts, China is one of the explanations.
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