China's Opportunities in European Recovery
In response to the invitation of Center for China in the World Economy (CCWE) of Tsinghua University, Klaus Regling, Managing Director of the European Stability Mechanism, together with Christophe Frankel, the CFO, Wolfgang Proissl, Head of Communications, and Annika Melander, Head of the Economic and Financial Section, EU Delegation Beijing, and Economic Counselor, among others, had an exchange and communication with experts and the audience with regard to the current economy in the Eurozone, the experience and lessons European countries have learned from the economic crisis, and the part China can play in Europe's road to recovery. The event was held in Shunde Building of Tsinghua University on the night of June 3, 2015.
David Daokui Li, Director of CCWE, was present and chaired the meeting. LI Rengui, Research Fellow with the Institute of Economics, Chinese Academy of Social Sciences (CASS), ZHANG Li, Research Fellow with the Chinese Academy of International Trade and Economic Cooperation, Ministry of Commerce (MOC), SONG Debin, Vice General Manager of the Overseas Business Division of China Communications Construction Co., Ltd., (CCCC), LIU Ying, Director of the Cooperation Research Department of Chongyang Institute for Financial Studies, Renmin University of China (RUC), and LI Yan, policy analyst with OECD China, among other Chinese experts, also attended the meeting.
Mr. Regling gave an account of the causes of the economic crisis across European countries. From his point of view, a good variety of factors have resulted in the crisis. First of all, the problem comes from some member states themselves. Eleven countries joined the Eurozone in 1998, but not all of them have been conscious of the responsibility they should take. Italy and Spain, for example, once witnessed double-digit interest rates in the 1990s and neither of the two governments had been politically prepared for the substantial decline of interest rates due to the stimulation of monetary policy. Secondly, the overall regulation became problematic across the Eurozone and the dramatically limited monitoring range, the lack of effective means to measure the structure-based fiscal deficit, and the frequent reporting of erroneous data by some countries, etc., all gave rise to economic disturbances in recent years. Last but not least is the imposition of double crises. The Eurozone encountered the global financial tsunami while getting in trouble of its own, leading to an even greater impact of the present crisis and a prolonged recovery.
This was followed by Mr. Regling’s introduction of the experience and lessons generalized in Europe’s recovery from the present crisis. The first is to reduce economic vulnerability. In other words, all member states must put their debts and fiscal deficits under control. From 2008 to 2010, the debts of some member states accounted for 5-10% of their GDP, with the percentage exceeding 15% in Greece and 30% in Ireland. After some restoration in a period of time, however, the total fiscal deficit in Europe was 2-3 times less significant than that in the United States and in Japan. Secondly, efforts should be made in reinforcing coordination among the member states in economic policies, establishing even more complete and strict regulations, verifying the data provided by the countries, conducting joint policymaking, and even having a minister of finance in place for the Eurozone, etc. Thirdly, it is important to establish a strong European banking system, take proactive monetary policies, and secure financial stability in the Eurozone and provide financial assistance for countries in need via institutions such as European Financial Stability Facility and the European Stability Mechanism.
Regling also said, nevertheless, that the loans are not credited unconditionally and that the member states must commit to have their policies changed and take further actions to create job opportunities so as to ensure they have the ability to pay back. The two institutions have been playing an extraordinarily active role in this respect and have offered total assistance of 238.6 billion euros to Ireland, Spain, Portugal, Greece, and Cyprus. The first three countries do not need the assistance any longer and Cyprus will also have relevant programs concluded in 8-9 months. Only Greece is still deep in trouble.
With regard to the question “whether it is possible that Greece will retreat from the Eurozone for the failure to reach an agreement with ESF/IMF prior to the end of the month” from an expert present at the meeting, Mr. Regling said that what the Greek Government had done was not really good and that it is now engaged in painstaking negotiations with institutions concerned for injection of funds. However, Greece is still a member of the EU and a member of a big family. Therefore, the EU will try its best to offer assistance to Greece under the precondition of satisfied relevant conditions to avoid such an uninteresting result for an of its member states.
As the meeting approached its end, Ms. Melander also made a short presentation on topics related to China that were interesting to the distinguished guests and audience present at the meeting. She believes that there is a strong interdependence between the Chinese and EU economies. For the time being, the European Union welcomes Chinese investors not only to buy bonds but also to be engaged in Europe's construction of infrastructure, real properties, etc., believing that this will result in healthy competition. Meanwhile, China will become a host country of the G20 and then further discussion will be handled between the two parties on investment treaties, among other things.
