Saturday, October 9, 2010

China to the Rescue

The recent announcement by China that it would buy Greek bonds when they are issued, likely early in 2011, and to double bi-lateral trade is definitely good news for Athens. It is also an interesting maneuver by China to gain influence within the EU as a whole through bi-lateral agreements with individual members that expose fault lines in attempts by France and Germany to impose a uniform foreign policy. 

Bi-lateral agreements with individual members of a bloc can provide significant leverage. For China, this form of diplomatic initiative will assist in lifting the EU ban on certain high-tech exports to China and for the EU to recognise China's market economy status, a long-standing request that would limit the EU's room to impose anti-dumping duties on Chinese imports. 

Will other debt burdened EU members turn to China as the financial saviour?  If so, then the results of bad financial policies in the EU and the US will very much affect global relationships in an unanticipated way.  As the US devolves toward banana republic status under control of its Republican and teabagger overlords and the EU struggles with the increasingly worrisome single currency, the balance is tipping.

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