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.