Warnings Mount against Concessions to China

Spiegel
November 1, 2011

The euro zone is looking for outside investors, but some fear that Brussels could offer China political concessions in return for cash. The head of Germany's powerful industrial federation has warned against such a course. But Europe, in the end, may have little choice.

In the run-up to last week's European Union summit, the consensus was clear. Europe's bailout fund, the European Financial Stability Facility, was simply too small. The fund's lending capacity of €440 billion would never be enough, it was said, to stop the spread of contagion to larger euro-zone economies like Italy and Spain.

Now that euro-zone leaders, led by Chancellor Angela Merkel and French President Nicolas Sarkozy, have agreed to leverage the EFSF, however, they are realizing that finding investors to back an increase in the fund's lending capacity to €1 trillion might not be as straightforward as they first thought. Indeed, European fundraising is likely to play a major role at this weekend's G-20 summit in Cannes, France.

So too, though, are warnings that the euro zone should steer clear of acceding to possible Chinese demands for concessions should it invest in the EFSF.

"If we in Europe organize the stabilization of the euro in such a way that we allow states to exert political influence from outside, then we are making a tremendous mistake," Hans-Peter Keitel, president of the Federation of German Industry, told SPIEGEL ONLINE in a Monday interview.

Keitel was referring to hints voiced by Li Daokui, a member of China's central bank monetary policy committee, that China might ask Europe to cease criticizing its policy of keeping its currency, the renminbi, artificially undervalued in return for investment in the EFSF. "The last thing China wants to do is throw away the country's wealth and be seen as just a source of dumb money," Li told the Financial Times last week.

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