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No short-term end to eurozone crisis

Editor's note:

The world may have breathed a sigh of relief at the results of the Greek election, which showed a choice to stay with the European Union.

But Chinese economists and business leaders have hastened to point out that the eurozone debt crisis is far from easing up.

On the part of China, many worries persist - ranging from a lingering slowdown in trade to a possible exodus of European capital, and even to a larger financial crisis affecting the global banking industry.

While looking forward to a more capable European leadership, many Chinese believe, as implicit from the following interviews, that China can continue to help the crisis-stricken region in one way or another.

Chinese leaders have said many times that the more Europe remains united, in spirit and in action, the more it can count on a concerted support from the international community, in which China will certainly play a due part.

No short-term end to eurozone crisis
 

No short-term end to eurozone crisis

No short-term end to eurozone crisis



The European sovereign debt crisis won't end in the short term, though the winning Greek party now supports the bailout plan. Countries in the eurozone directly beset by the crisis are likely to suffer weak economic growth in the next decade.

The election result of the Greek Parliament can help (the country) implement austerity measures and continue to take bailouts. It is also a benefit for the stabilization of the European financial system.

However, the possibility of a Greek exit has not yet been eliminated as the crisis may deepen in the next two or three years. Other countries may also have the potential to quit the eurozone, adding risks to the global economy.

No short-term end to eurozone crisis



The European Union needs to strengthen the European Financial Stability Fund and European Stability Mechanism, as well as build a firewall together with the European Central Bank, the International Monetary Fund and the G20.

At the same time, market-based debt restructuring should start along with financial retrenchment. To some extent, fiscal integration on the continent should be accelerated with the help of issuing eurobonds.

No short-term end to eurozone crisis

 

China can contribute to solving the problem of indebted Europe, although it mainly depends on those EU countries themselves. China may participate in the firewall building and bailout plans, under the IMF and G20.

The steady growth and reform of the Chinese economy can increase confidence of the global market, especially providing trade and investment opportunities for the EU countries, which can help them get out of their dilemma.

The Chinese government should encourage domestic companies to expand investment in Europe while improving risk management capacity. It can also inject new vitality into economic growth.

More preferential measures can be introduced to attract European companies to increase investment in China and reduce their market risks.

No short-term end to eurozone crisis



The Chinese government may need to lower the economic growth expectation to as low as 7 percent in order to tame inflation and leave more space for policy adjustments with the increasing uncertainties and risks from outside.

China should maintain the continuity and stability of macroeconomic policies. More fiscal and monetary fine-tuning measures need to be taken to support the development of the manufacturing industry.

Encouraging expansion of the real economy such as manufacturing and stimulating domestic demand can help stabilize GDP growth while accelerating economic restructuring. What should be avoided is to expand supply recklessly.

The tight measures for the property market should not be eased soon, and more market-based reform is expected to rebalance development among different industries.

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-----Wang Haifeng

Director of international economics, Institute for International Economic Research,
a think tank under the National Development and Reform Commission

 

No short-term end to eurozone crisis

No short-term end to eurozone crisis



The election results from Greece have created a positive "turning point" for the eurozone debt crisis. It soothed the anxiety and panic of investors and the public, and will curb the flight of deposits from European banks.

Although all the stakeholders could be relieved for a while, it's impossible that the debt crisis will come to an end in the short term. Austerity is too shortsighted a method to solve the debt problem. In the future, the eurozone must put more emphasis on stimulating economic growth, otherwise Italy will be the fifth country to beg for aid.

No short-term end to eurozone crisis



The current situation has proved that the measures adopted by Europe to fight the fire didn't work. Apparently, it's time to change the way of thinking.

First, the European leaders must find ways to save the banks, to make sure the banks don't fail. While implementing austerity, the eurozone should reach a consensus on issuing EU bonds. And the European Central Bank could further intervene in an "appropriate" way to provide backup for the countries in trouble. It should be allowed to purchase European treasury bonds directly, or buy the treasury bonds from the vaults of commercial banks.

No short-term end to eurozone crisis



As the world's second-largest economy, and a major trade partner with Europe, China should and must play a positive role in supporting the EU to solve the debt crisis. In the past few months, China's economy has been obviously affected by the eurozone's problems.

China also has to take on more obligations to help Europe overcome the current difficulties. But given the high-level risks of the eurozone, it's better for China to help through international institutions such as the IMF, which has better credit and would work as an underwriter for Europe. However, the government should keep in mind that Europe leaders should, and still could solve their own problems in a decent way.

No short-term end to eurozone crisis



Chinese enterprises have taken effective measures to reduce the negative effects of the European situation. Exporters have been exploring the domestic market and emerging markets, and such efforts should be strengthened.

For the government, it should watch how the situation develops very carefully and maintain smooth communications with European leaders. The authorities could also help create more investment opportunities for enterprises that are interested in developing business in Europe.

 

-----Song Hong

Senior researcher, Institute of World Economics and Politics,
Chinese Academy of Social Sciences

 

No short-term end to eurozone crisis

No short-term end to eurozone crisis



With the New Democracy party coming first with a relative majority, Greece was spared a "sudden death".

I hope now that the political leadership that created this crisis will be able to agree on a plan to solve it.

No short-term end to eurozone crisis



The EU should insist on reducing the Greek state as a precondition for further financial assistance.

The last two-and-a-half years of austerity have hit the weaker classes without improving productivity because of a lack of structural reforms.

No short-term end to eurozone crisis



China can be of help by investing in Europe's infrastructure projects (energy, transportation and natural resources).

No short-term end to eurozone crisis



China is already trying to develop its domestic consumer market, which will gradually reduce its dependence on its trading partners.

-----Christos Vlachos

Managing Partner of Silky Financiers Ltd in Greece

 

No short-term end to eurozone crisis

No short-term end to eurozone crisis

It is premature to conclude that the crisis will be over soon. Actually as the saying goes, Rome wasn't built in a day. The sovereign debt crisis is an accumulated result of the West's past economic development model.

Before the crisis, we used to admire the service sector's large share of the (Western) economy, usually above 80 percent. Now in time of crisis, we see the damage of high indebtedness and it is difficult for the service industry to generate growth quickly. It is the manufacturing sector that is really powering growth and improving productivity.

Now I see slight hope for the EU to restore its resilience, unless a major technology revolution emerges and ramps up productivity.

No short-term end to eurozone crisis



I prefer austerity measures because boosting the economy simply by pumping in massive liquidity may tackle the problem over the short term, but its side effects are hard to bear - namely, increasing inflation and the expansion of debt.

No short-term end to eurozone crisis



I think China has done a lot for the economy, of which economic growth and growing trade are of prime importance. Last month, China's imports grew 12.7 percent over the same period of last year. China's growing imports from the West helped them a lot.

No short-term end to eurozone crisis



I think the impact of the eurozone woes on China is mainly reflected in external demand. In this sector, unlike other experts, I think its impact is limited.

The euro debt crisis unfolded in the past year, but China's trade in 2011 grew 22.5 percent to hit $3.64 trillion. Compared with weakening external demand, domestic factors, like the rising labor and raw material costs, pose a bigger threat to China's exports.

China has already taken several steps to counter weakening demand, such as reducing some consumer goods tariffs. I think generally China should expand its imports, with moderate growth in consumer goods.

There is concern that as the eurozone debt crisis deepens, there may be an exodus of European capital from China. At present, I think this is unlikely. I think we should not worry too much about foreign direct investment. China's current situation differs greatly from 30 years ago when we were cash-strapped. Compared with money, advanced equipment and technology are more urgently needed.

 

-----Li Yushi

Vice-president, Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce,
guest economist of China Daily

 

 
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