The European Union is seeking closer cooperation with China in the context of stagnant world economy and its sovereign debt crisis.
“The economies of the EU and China have become ever more closely linked. This has confirmed the need for common analysis and joint actions by the EU and China, not only in the short term, but also in dealing with the fundamental challenges we both face in the medium term,” said Jose Manuel Barroso, European Commission President, together with European Council President Herman Van Rompuy and China’s central bank governor Zhou Xiaochuan, at an opening ceremony for the “Currency for Europe” exhibition, which was held at the Beijing-based University of International Business and Economics.
“We need to work ever more closely together on a wide range of issues to make change happen for the better and for the well-being of our citizens and future generations,” he added.
European Union is now China’s largest trading partner, with business worth more than ? billion taking place each day. Statistics shows that the bilateral trade volume has reached 560 billion euros.
The continuing eurozone debt crisis
On Feb. 13 Moody’s Investor’s Service cut its ratings on six European nations including Italy, Spain and Portugal. It also warned another three - Austria, France and the United Kingdom that their top ratings could be at risk, citing the weakening prospects for an overhaul in Europe. The downgrade was the latest such move by a major global ratings agency. Standard & Poor’sand Fitch Ratings each cut ratings for the eurozone last month, China Daily reported.
Though trapped in the eurozone debt crisis, the EU “has been acting decisively”, said Barroso. The EU has taken important decisions to tackle the question of sovereign debt and strengthen economic governance in the eurozone, to improve financial supervision and stabilise public finances, to implement the necessary structural reforms and to enhance its competitiveness.
According to Barroso, the EU has constituted significant firewalls, to the combined tune of ?00 billion(EFSM+ESFSF) which are being used to give financial assistance to some Member States. From July on, the permanent crisis resolution mechanism, the European Stability Mechanism(ESM) will be in force. Besides, the EU has strongly reinforced the rules for fiscal discipline, the so called Stability and Growth Pact. More recently, on January 30, there was agreement on a fiscal compact in the form of a new Treaty which further fosters fiscal rectitude.
Still, member States are implementing hard but necessary budgetary adjustment and structural reform. The process of recapitalization of European banks is going according to schedule. The European Central Bank is taking decisive action through making available to banks liquidity, which is contributing to ease banks funding problems.
According to Van Rompuy, some governments in EU countries under pressure had to take drastic measures including budget cuts and economic reforms. Three countries (Greece, Ireland and Portugal) have to ask for a provisional European-organized shelter from the market rates, in order to be able to finance their deficits and debts. Other countries has to be convinced to help their partners.
The EU has built the tools to face the situation. The central surveillance and enforcement mechanisms are also strengthened for the public debts and deficits to prevent future trouble.
Political leaders are showing real courage in all member states to convince their parliaments and public opinions of what is at stake. Some governments are forced to resign for taking unpopular decision, but all the new ones are committed to adopt and implement reforms.
“In the current crisis, beyond the money involved, it is a common European destiny which is at stake. That is why we European leaders, when in difficulty, will do everything what is required to maintain the Euro and the financial stability of the Euro zone,” said Van Rompuy.
China’s ready for resolution
China is lending a hand to EU for addressing the debt issue. China is seen as having the potential to bail out some troubled European governments, with US$3.2 trillion in foreign exchange reserves.
“China’s willingness to support the EU in dealing with its debt problems is sincere and resolute,” said Premier Wen Jiabao at the 14th China-EU summit in Beijing, which was also attended by Van Rompuy and Barroso.
China supports the EU in strengthening fiscal discipline, and hopes the European side will create a positive and favourable environment to deepen China-EU financial cooperation, Wen was quoted as saying by Xinhua News Agency. He said joint efforts made by the international community in dealing with the European debt issue are very important for the stability and recovery of the global economy and international finance. China will consider getting more involved in solving Europe’s debt woes, especially through the European Stability Mechanism and the European Financial Stability Facility.
China will continue to invest in eurozone sovereign debt, Zhou Xiaochuan said. “China will not reduce the proportion of euro exposure in its reserves.”
“We have appreciated the constructive Chinese reaction to the challenge we face. Both in the bilateral relations and in the G20, we highly value your confidence,” said Van Rompuy, by adding that“We will consult each other and we will cooperate in a concrete way to ensure the financial stability of the Eurozone, which is an important outcome of the EUChina Summit.”
“Europe and China share a wish to live in a multi-polar world. A world which is “united in diversity”, where we work together to find global solutions to common problems. The key word for the EU-China relationship is cooperation not rivalry,” Van Rompuy said.
Closer relationship needed
The crisis in Europe has demonstrated not only the mutual importance, but also the interdependency inherent in the EU-China economic relationship. With massive business and investment opportunities still accessible, both parties need to work together at this critical juncture to not only resist responding to pressures to protect markets, but to instead resolve to mutually open markets. Doing so will assist a more speedy resolution of the current global economic difficulties and will also lead both sides to increase efficiencies and innovation, ultimately at the benefit of the consumer in both the EU and China.
“As China aims to rebalance its economy through increasing domestic consumption, relying less on exports and opening its economy, this process will bring the economies of the EU and China closer. This will bring synergies, but will also put China and the EU into greater competition together in some areas”, said Davide Cucino, President of the European Chamber.
It is of requisite importance that short-term trade irritants are addressed and solved in a spirit of mutual trust and cooperation so as not to jeopardize the strong potential of the future EU-China economic relationship.
“By maintaining an eye to the long term and the potential and significant mutual benefits which it could entail, it should be possible for both parties to amicably solve and make progress on the current issues which affect the EUChina relationship in the knowledge that this will bring huge benefits in the future,” Davide added.
Although the economies of the EU and China are different in many ways, there are also an increasing number of similarities. At the core of both the EU’s 2020 Strategy and China’s 12th FiveYear Plan is the drive for green and sustainable growth based on an innovative economy.
Eight years after China released its first policy paper on relations with the EU, much has changed in the bilateral ties. “China is now a global force and so it is especially welcome,” said Barosso, strongly welcoming the Chinese leadership’s ambition to rebalance China’s growth model in the medium term, and in line with the G20 framework for growth. “Increased Chinese consumption, like increased economic discipline and convergence in Europe, will be important for delivering sustainable global growth, and I welcome the recognition of this in China’s 12th Five-Year Plan,” he said.