stax
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Could it be only six weeks ago that Ireland had to accept an EU/ECB and IMF bailout?
If you were away from the market for a few weeks and had no idea what was going on, you could be forgiven for asking "What debt crisis?"
The euro is comfortably above 1.30 to the US dollar and, despite recent falls, more than 12% above the low reached at the peak of the Greek debt crisis. So can we all sleep soundly at night safe in the knowledge that the eurozone has avoided collapse and the debt problems of the peripheral nations are safely contained?
Well, the answer might be yes. Right now China's vice-premier Li Keqiang is visiting Europe and could be the knight in shining armour that the currency bloc needs.
He is also helpfully bringing with him billions to buy up Spanish debt. Li Keqiang made a forceful defence of Spain at the start of his visit during an interview with a Spanish newspaper, saying China is a responsible long-term investor who has confidence in Spain's financial market.
These are soothing words for the Iberian nation and the EU authorities who had to face the prospect of Europe's fourth largest economy requiring a bailout fund larger than the bailout pot itself.
Free guide to trading currencies
Just the start
Now Beijing has pledged to buy up Spanish debt it may spur other investors to follow or at least to stop ditching it at recent speeds, which could help to stabilise bond yields (currently, 10-yearr Spanish bond yields are 5.32 %).
A buyer with such big pockets as China is also a welcome addition to the upcoming debt auctions of the peripheral nations. Spain, Portugal and Italy all have hefty debt issuance schedules in the first quarter of 2011, and eurozone authorities must be rolling out the red carpet during Li Keqiang's visit.
Other implications of China's move
But are there any implications of the Chinese buying up Europe's debt? It all depends on how much they buy and then how much say they want over how the eurozone works.
It will also leave the peripheral nations exposed to Beijing. If the emerging market powerhouse decides to sell its holding of eurozone debt then yields will rise, especially if its holding is significant.
There may also be political concerns about the growing influence of China's financial strength across the globe. And if China owns a chunk of peripheral debt does it weaken Europe's hand in pressing for a revaluation of the yuan?
The eurozone needs to rebalance its economy away from domestic demand toward an export-orientated economy; part of the road to achieving this is for China to consume more European-made goods but it may need to apply pressure on Beijing and press them to promote consumerism in a timelier manner.
A problem worth having
But these are all hypothetical concerns. To get a better sense of what Chinese ownership of eurozone debt might look like we should look over the other side of the Atlantic.
The Chinese have been buying up US Treasuries by the bucket load during the last decade and were the largest holders of US debt until the Fed stepped in with its second round of quantitative easing back in November.
China has never dumped Treasuries causing a headache for the US authorities, if anything it has been a model creditor. They have continued their steady buying of Treasuries even as the US debt burden ballooned and although Beijing questioned the effectiveness of the second bout of quantitative easing it was not as vitriolic as some other nations.
China realises that a strong US is in its own interests due to the amount of US assets it owns. The same will be true if it increases the amount of assets from the eurozone to its portfolio.
It has proven in the past that it can be a responsible long-term investor, exactly what European officials have called for in recent months. During the peak of the debt crisis finance ministers all over the eurozone were lamenting the short seller and blaming speculators for the collapse in the bond markets and the surge in financing costs for some of Europe's weaker nations.
China will want to protect its investment and not rock the boat and cause price fluctuations. This may boost general investors' confidence to purchase peripheral nations' debt now that they know China is also a buyer.
This relationship is, of course, mutually beneficial. China wants to diversify some of its US denominated assets, so Europe's crisis is - in one sense - helping out Beijing's money managers.
We may look back at this moment and see that China was, indeed, Europe's knight in shining armour.
Orignal Link:
Can China save Europe? - Yahoo! UK & Ireland Finance
If you were away from the market for a few weeks and had no idea what was going on, you could be forgiven for asking "What debt crisis?"
The euro is comfortably above 1.30 to the US dollar and, despite recent falls, more than 12% above the low reached at the peak of the Greek debt crisis. So can we all sleep soundly at night safe in the knowledge that the eurozone has avoided collapse and the debt problems of the peripheral nations are safely contained?
Well, the answer might be yes. Right now China's vice-premier Li Keqiang is visiting Europe and could be the knight in shining armour that the currency bloc needs.
He is also helpfully bringing with him billions to buy up Spanish debt. Li Keqiang made a forceful defence of Spain at the start of his visit during an interview with a Spanish newspaper, saying China is a responsible long-term investor who has confidence in Spain's financial market.
These are soothing words for the Iberian nation and the EU authorities who had to face the prospect of Europe's fourth largest economy requiring a bailout fund larger than the bailout pot itself.
Free guide to trading currencies
Just the start
Now Beijing has pledged to buy up Spanish debt it may spur other investors to follow or at least to stop ditching it at recent speeds, which could help to stabilise bond yields (currently, 10-yearr Spanish bond yields are 5.32 %).
A buyer with such big pockets as China is also a welcome addition to the upcoming debt auctions of the peripheral nations. Spain, Portugal and Italy all have hefty debt issuance schedules in the first quarter of 2011, and eurozone authorities must be rolling out the red carpet during Li Keqiang's visit.
Other implications of China's move
But are there any implications of the Chinese buying up Europe's debt? It all depends on how much they buy and then how much say they want over how the eurozone works.
It will also leave the peripheral nations exposed to Beijing. If the emerging market powerhouse decides to sell its holding of eurozone debt then yields will rise, especially if its holding is significant.
There may also be political concerns about the growing influence of China's financial strength across the globe. And if China owns a chunk of peripheral debt does it weaken Europe's hand in pressing for a revaluation of the yuan?
The eurozone needs to rebalance its economy away from domestic demand toward an export-orientated economy; part of the road to achieving this is for China to consume more European-made goods but it may need to apply pressure on Beijing and press them to promote consumerism in a timelier manner.
A problem worth having
But these are all hypothetical concerns. To get a better sense of what Chinese ownership of eurozone debt might look like we should look over the other side of the Atlantic.
The Chinese have been buying up US Treasuries by the bucket load during the last decade and were the largest holders of US debt until the Fed stepped in with its second round of quantitative easing back in November.
China has never dumped Treasuries causing a headache for the US authorities, if anything it has been a model creditor. They have continued their steady buying of Treasuries even as the US debt burden ballooned and although Beijing questioned the effectiveness of the second bout of quantitative easing it was not as vitriolic as some other nations.
China realises that a strong US is in its own interests due to the amount of US assets it owns. The same will be true if it increases the amount of assets from the eurozone to its portfolio.
It has proven in the past that it can be a responsible long-term investor, exactly what European officials have called for in recent months. During the peak of the debt crisis finance ministers all over the eurozone were lamenting the short seller and blaming speculators for the collapse in the bond markets and the surge in financing costs for some of Europe's weaker nations.
China will want to protect its investment and not rock the boat and cause price fluctuations. This may boost general investors' confidence to purchase peripheral nations' debt now that they know China is also a buyer.
This relationship is, of course, mutually beneficial. China wants to diversify some of its US denominated assets, so Europe's crisis is - in one sense - helping out Beijing's money managers.
We may look back at this moment and see that China was, indeed, Europe's knight in shining armour.
Orignal Link:
Can China save Europe? - Yahoo! UK & Ireland Finance
