Chinese involvement in bailing the eurozone out of crisis is looking more and more likely, according to the reports circulating about the matter.In particular, traders are chattering about a contribution of €50 to €100 billion ($70-$140 billion) in foreign exchange reserves from the Chinese government, in collaboration with the IMF.
An unnamed source “familiar with the thinking of the Chinese leadership” told the FT that he government might be willing to devote this kind of sum to funding the EFSF.
While we’re sceptical that China is quoting this — or any — specific numbers yet, reports of EFSF head Klaus Regling’s sudden trip to China yesterday and a phone call today between French President Nicolas Sarkozy and Chinese Premier Hu Jintao suggest that the Chinese are seriously considering substantial involvment in the bailout.
Such a move might make sense for the Chinese, which would suffer negative trade consequences from a protracted eurozone crisis.
If the Chinese are indeed involved, however, they could force the hand of the U.S., which has expressed trepidation about further IMF involvement in the crisis. Not only would an increased monetary contribution from China complicate U.S. dominance of the IMF, the Chinese could extract promises from EU leaders that would be harmful their American counterparts — like an acceptance of Chinese currency intervention.
Either way, the eurozone bailout will no doubt be a primary topic of discussion at a meeting of G20 leaders in early November.
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