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15th Aug 2022

China and India pull back from EU after Greek surprise

China and India have indicated that the Greek referendum will make it harder for them to put their money into eurozone rescue schemes.

Chinese President Hu Jintao told French leader Nicolas Sarkozy at the G20 summit in Cannes on Wednesday (3 November) the EU should go it alone. "It is mainly up to Europe to resolve the European debt problem ... We believe Europe has all the necessary wisdom and the capability to resolve the debt problem," he said, according to the Xinhua news agency.

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  • Hu (l) and Sarkozy in Cannes. Economist Xie said: 'Chinese people work much harder than Europeans and are paid one tenth as much. It is morally wrong for China to aid such people' (Photo: diplomatie.gouv.fr)

His finance minister, Zhu Guangyao, said EU plans to boost the lending power of its bail-out fund, the EFSF, remain too vague and that Greece has created too much uncertainty for Beijing to make a decision.

"The fund has not established details of its investment options, so we still can't talk about the issue of investing ... Like our European friends, we did not expect the Greek referendum," he told the BBC.

Andy Xie, an independent, Shanghai-based economist in a note on Wednesday gave several reasons for China to stay out.

He said Beijing risks losing its money, that Europe will not grant political favours in return, that it is "morally wrong" for hard-working Chinese people to support wealthy Europeans and that the EU has enough money to solve the crisis alone.

For his part, Indian Prime Minister and former economist Manmohan Singh in a pre-Cannes statement said that if the International Monetery Fund gives too much money to the EU, there will be nothing left for developing countries.

"We have to be wary of contagion effects ... We need to ensure that developing countries have access to requisite funds through multilateral development banks and to investible surpluses to meet their infrastructure and other priority needs," he said.

Indian finance minister Pranab Mukherjee told newswires the EU must decide how to handle Greece before India gets involved.

"Let them make a credible assessment of the solvency issue, try to sort out those problems and then, afterward, supplementary financing could be considered. Let us see what the leaders decide," he noted.

"We are not sure of the outcome because the nature of the crisis has changed," an Indian official told India's Economic Times on condition of anonymity.

Asian markets on Thursday suffered losses on the back of the Greek decision underlining the importance of eurozone stability for the global economy. Hong Kong's Hang Seng index fell 2.2 percent, South Korea's Kospi lost 1.3 percent and Australia's S&P AXS 200 fell 0.7 percent.

The euro crisis is also causing political fall-out in France, where opposition centre-left politicians have roasted Sarkozy for going begging to Asia.

"By turning to the Chinese, the Europeans are showing they are weak," Socialist party chief Martine Aubry said in the Journal du Dimanche on Sunday.

"What we've ended up with now is a double dependence. We're dependent on Germany, which sets the rules of the game, and dependent on China, which is being elevated to the status of an economic and financial empire that will fly to the rescue of the European Union," Socialist presidential candidate Francois Hollande said on TV at the weekend.

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Chinese diplomats are awaiting a detailed proposal on taking part in the EU bail-out fund, the EFSF, while promising not to push for market economy status or lifting the arms embargo in return.

Chinese ratings agency downgrades Greece

China's ratings agency Dagong on Tuesday downgraded Greece's sovereign rating to the second-lowest 'default' level, a move suggesting Beijing has no intention of "playing Santa Claus" to the ailing eurozone, experts say.

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The EU's troubled bail-out fund, the EFSF, could have its lending capacity more than doubled to €940 billion to reassure markets that Italian and Spanish debt is safe.

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