China Buying European Bonds Is One Of The Worst Ideas Imaginable

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Photo: AP

There are headlines out again about China possibly stepping up its activity in the European bond market. Angela Merkel is on a 5-day tour there, and some folks see it as a bond selling mission.In a very superficial sense, we can see why some people thing this might be a good thing. European governments need cash. China has a lot of cash.

In reality this is a dumb idea.

  • The Eurozone as a whole has no solvency, cash problem. The Eurozone has a central bank capable of creating all the euros the continent needs.
  • China remains poor. It’s scandalous that the people’s money would be used to bail out remarkably rich nations like Spain and Italy.
  • Sending Merkel on a bond selling mission to China is a step towards ceding some power/control to China, which seems absurd, especially since as stated above, Europe is capable of financing itself.
  • China buying more European financial assets will boost the euro relative to the yuan, worsening the China-EMU trade balance from Europe’s perspective.

In short, it’s pointless, and with negative political and economic ramifications for Europe.

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