One swimming in cash and the other struggling to stay afloat, both China and the US are dispatching senior officials to Europe amid growing fears that the debt-laden bloc may drag them down in its fall.
By Benjamin DODMAN (text)
The US Treasury secretary, Timothy Geithner, will be making on Friday his second trip to Europe in less than a week, while the chairman of China’s largest sovereign fund was in Rome last week for talks with Italy’s finance minister, Giulio Tremonti.
The high-profile visits come amid heightened concern about Europe’s debt crisis and the risk of further contagion, with the prospect of a Greek default on its debt now back on the table.
European stock markets have slipped to their lowest level since 2009 following a month of torrid trading, with leading French banks losing up to two thirds of their market value.
And with European leaders showing little appetite for bold moves, governments in Washington and Beijing are concerned things may get worse.
Chinese overture
Fears of contagion in Europe’s debt crisis have hinged on Italy, whose ballooning public debt is second only to that of Greece.
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The eurozone’s third-largest economy has been plagued by a toxic cocktail of high debt, slow growth and persistent political instability, which has rattled investor confidence and hampered Italy’s efforts to raise money on the liquidity market.
As a result, the Italian government has turned to China in the hope that it can sell chunks of its debt, and of its cash-strapped businesses, to Beijing.
“If they help get Italy’s sputtering growth back on track, foreign investments are most welcome, even if they come from China,” said Françoise Lemoine, a China expert at the EHESS in Paris.
Ironically, Italy’s overture to China has been led by Finance Minister Giulio Tremonti, who once warned of the threat of a “reverse colonisation” by China.
On Tuesday, Italian officials confirmed that Tremonti had met with the powerful chairman of the state-owned China Investment Corporation (CIC), whose job is to invest of Beijing's $3.2 trillion in foreign reserves. But there was no confirmation of a deal.
Adding to the sense of urgency, it later emerged that Italy had paid a record 5.6% interest on the sale of five-year bonds, dangerously close to the 7% mark that heralded bailouts for Greece, Portugal and Ireland...
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