The government of Greece is in talks with the Chinese government, in the hope that the latter will buy up a large amount of Greece’s debt, thus staving off the possibility of default. The announcement has come at the end of a three-day visit to Greece by Chinese Premier Wen Jiabao. Jiabao also announced China would not “abandon Europe” and would retain its holdings of eurobonds.
But he also pushed for the EU to recognise China as a free-market economy, a move that would release restrictions on exports of high-tech to China, and also give the EU less scope for protectionist measures against Chinese imports.
The move will be welcomed by many in Greece, as it provides an alternative source of capital to provide a buttress against European money market, dictating terms with high interest rates on Greek public debt — the manipulation of which had as much to do with the Greek fiscal and political crisis as the government deficit itself.
The Chinese offer is not exactly a freebie — one thing the Chinese are very interested in is the Greek government’s assets sell-off. Since the sell-off has to be done as a condition of the earlier EU bailout, prices are at rock bottom and include a significant number of harbour facilities.
Get Crikey FREE to your inbox every weekday morning with the Crikey Worm.
The EU will put a brave face on this — Jiabao is also visiting Brussels to speak to the Union as a whole — but the sudden expansion of China in a volatile corner of the Mediterranean will make everyone nervous. The move points to a contradiction at the heart of the “uncompleted” European Union — that it is still a collection of sovereign states that can make deals with anyone it likes.
The question is, who will be next? Ireland may be a possibility, as the country has lurched into fresh crisis, with the government bailout of the entire banking system. Anglo-Irish Bank, a spivs outfit specialising in vast property development loans — for many half-built projects that litter the republic — was taken over by the state two years ago, at a cost of €30 billion.
Now, Anglo-Irish’s major competition, Allied Irish Banks, is to become 90% state-owned to avert a fresh crisis. The country’s political elite deny that the country will become another Greece, even though its deficit will balloon to a huge 30% of GDP in the coming year. The country’s borrowing needs were taken care of until mid-2011, finance minister Brian Lenihan said. Oh, that’s all right then.
The Financial Times was similarly rosy, noting that there was always the €24 billion state pensions fund to borrow on. Oh that’s all right then.
Still, there are opportunities. China, for example. As Taoiseach (pronounced T-shirt) i.e. Prime Minister Brian Cowen said during a visit by a Chinese delegation last month, “Ireland could be China’s gateway to Europe”, citing its advantage as an English-speaking member of the eurozone, and easy military access to UK ports, I made that last bit up. Still, the delegation can say, been there, done that, got the Taoiseach.
Clearly, China’s meeting with the Irish PM was evidence they are seeking a way* into Europe. Could Iceland, still struggling with debt, be a possibility?
Why yes! Last month Iceland’s President Olafur Ragnar Grimsson made his fourth visit to China, to continue negotiations about a deal for privileged shipping access to the benighted frozen island. The move follows a currency swap agreement between China and Iceland after the latter’s financial crisis.
Practically on the day the news was announced, the director of the state-subsidised Reykjavik Film Festival was “summoned” to the Chinese embassy, in an attempt by Beijing to have a pro-Tibet film withdrawn from the festival. Still, the idea of further Iceland sell-offs might not sit with a public more militant than Ireland. Last week, 2000 protesters besieged the opening of parliament, forcing the MPs (except for three of them, who were part of the protest) to flee out the back door of what is presumably a large shed. Still, that’s what Icelanders do, that’s their thing.**
By now, some people in Europe and the US are starting to wake up to the political consequences of letting a transnational global financial system dictate terms to a West shaped by three decades of neoliberalism and the delusional belief that the West will always be calling the tune.
By treating countries such as Greece and Ireland as peripheries whose debt can be manipulated at will, the markets now ensure the opposite effect — countries start looking for other sources of capital, from China, from Arab sovereign wealth funds, and Venezuela in Latin America. They will be increasingly unfussy about any political strings attached.
The response that then follows is not analysis of political shifts, but xenophobia and racism. China is not pursuing its interests, it is somehow “cheating” — it is holding the renminbi at an “artificially” low rate. Low compared to what? To the currency settings made by markets based in the UK and Europe. Thus, according to Fred Bergsten of the FT, “the competitive undervaluation of China is infecting the entire global economy”. Infecting. Hmmmmmm.
This is hilarious. The US and Europe kept state control of their exchange rates for decades while they built up their national economies. Faced with the prospect of unending stagflation in the 1970s, they loosened them off in the ’80s, knowing that to do so was to hand over vast amounts of power to global markets and banks to the detriment of the state — and make it difficult for anyone in the West to have a stab at a real social democratic government again.
Now that China is at a similar developmental stage as that earlier period in the West, sovereign control of exchange rates amounts to cheating. Make your prices competitive by keeping your money cheap — outrageous. Do so by pushing wages through the floor — fine.
Of course, in the long run, China will have to factor in the possibility of retaliation. The US Congress is already halfway through passing a bill to treat “undervaluation” as subsidy and impose duties. It could also take monetary measures — which China could then appeal to the IMF (which is run by the US).
What is clear, of course, is that the brief lived “new world order” after the end of history — inaugurated by GATT and the WTO in 1994-95 — is coming apart, as sovereign political power re-asserts itself. Western elites who handed over financial power to global markets assumed it would be aligned with western political interests indefinitely. Instead it went rogue and wrecked the joint.
The minor sideshow of radical Islamism served as a further distraction. The Chinese, the Indians, and others — who never got the fax about history being over (remember fax?) — continued as our empires did, using trade, protection and money as strategic tools in their growth.
Now China is on track to having the largest blue-water navy in the world, and three geographical gateways to Europe are broke, flat on their backs and open to all offers. To suggest that China’s advancement of its own interests is somehow illegitimate — or worse that it is somehow inscrutable and oriental — is racism and xenophobia, pure and simple. But at the level of pure global power politics, only a fool would not pay attention to a larger process clearly under way — the return to sovereign power politics.
*A rather clever bilingual pun, easy to miss, so I thought I’d point it out.
**Another bilingual pun, it would be easy to miss.