China seeks higher ground in Europe

2011-10-04Asia Times

BEIJING - It is clear, although little stated, that the present crisis in Europe might be a blessing in disguise for the political union. In a matter of weeks, all parties - previously hesitant if not in opposition to strengthening the European Union - have started calling for stronger measures from Germany (the strongest economy in the area) and Brussels to tackle the credit threat and move toward closer economic, and thus political, integration of the regional pact.

Voices from Britain, a member of the union but not of the euro, from America, once suspicious of the political unity of the European powerhouse, and from Germany, scared of its past ambitions to continental dominance, are now a chorus pushing for faster and closer integration of financial policies. These, paired with the already agreed upon monetary union of the European Central Bank, could push for some de facto greater political union.

Policies governing common taxation guidelines in fact touch on the basic relationship between the government and the people, and thus are the fulcrum of any political entity. The centralization of monetary and fiscal policies in Brussels (the seat of the European Commission) or Frankfurt (the seat of the European Central Bank) could quite easily also bring about the next centralization of trade policies (already pretty much centralized), and thus greater coordination in foreign affairs, and defense policy.

Here, there is a standing complaint from the ally America: at the beginning of the bombing offensive against Libyan leader Muammar Gaddafi in the spring, former American secretary of defense Robert Gates complained about the lack of European defense spending. In fact, the Europeans are spending quite a lot on defense overall; unfortunately, the European countries are spending each on its own, with no unified continental policy. Then there is a huge dispersion of resources and want of efficiency.

A greater political union could address all those issues.

Certainly, the political union still has a long way to go, and even the measures to grant more power to the European institutions by subtracting that power from the national parliaments are moving slower than market volatility. This volatility threatens to make the markets tumble every week, pushing bond yields of different European nations further apart. Then there is the concrete possibility that a sudden spike in the markets could destroy the delicate balance of Greece or Italy (the two countries financially most fragile at the moment) before Frankfurt can muster the power to intervene.

Meanwhile, America, long a drag against the European political union, has taken sides for a stronger union in Europe, as it realizes that a major disaster in the old continent's markets would create a second, larger dip in the ongoing financial crisis that would not spare the US.

However, there are two more elements that become extremely important to determining future: the attitude of China and Germany's reconciliation of its long- and short-term interests.

First, the German issue: Germany's long-term interest is in upholding the euro. As former European president Romano Prodi put it, the stability of monetary exchange in Europe made the present German trade surplus possible. Formerly, in the times of the deutsche mark, once Germany had a trade surplus, its currency would appreciate against the Italian lira or the French franc, and those countries in turn would export more, undercutting future German surpluses.

Without national currencies, the different states cannot devalue against Germany's greater industrial efficiency. Thus in the past years of currency union, Germany has been able to gain large surpluses and a large amount of capital to invest in Europe and in the world, expanding Germany's industrial base. Then Germany has a keen interest in saving the union and even Greece and Italy - or so it would appear.

In fact, these long-term interests clash with urgent and pressing short-term ones. The hole in Greek finances was greatly unexpected, and Greek authorities in the past year have not been very forthcoming in the assessment of their situation, producing accounts that varied over time.

Social protests are swamping the country, and a necessarily costly European salvation plan could stir up further protests and reveal more and deeper holes in Greek finances. The same could also be true, and on a much larger scale, in Italy. Then thrifty German taxpayers would be asked to bleed for the profligate Mediterranean states, who might then feel encouraged by this rescue to continue their profligate ways - and would be ungrateful for the aid and protest against the new German oppression.

Then, Germany and Europe don't need just money; they need a higher political message to bring the people together while on the brink of impending disaster. Europe needs leaders with courage and a knack for telling their people straight to their faces that Europe can have a bright future, as long as everybody, from the north or south, is ready to take a stand and contribute his part in these very difficult times, overlooking for a while their particular interests. This is the great opportunity for Europe with this crisis.

And it is an opportunity for China, as well. The 1997-98 Asian financial crisis was a golden chance for China: by stemming the tide of competitive devaluations, China rescued itself and the rest of Asia, and it also established for the first time a high international standing, above that of Japan, then a larger economy, which almost succumbed to the financial pressures. It did so without bargaining with anybody, but by remembering its higher interests, which coincided with those of the region.

There are similar coinciding interests now between China and Europe. A deep crisis in Europe could kindle a global economic recession and would end the possibility of a European political union, something that could gravely alter global political strategies. Both prospects could be dangerous for China in the short and long term.

This should be China's greater interest, and this interest should create in an unconditional support for the present European effort.

This support does not necessarily mean money. If Europe can't find the political will to get its act together, there is no money in the world that can do it for her. Europe needs global trust - that could help the future union believe the whole world welcomes it and does not oppose it. China then should not attach many strings to this help, which would defeat the purpose of the aid. Of course, there is no free meal in this world, and Europeans can't believe that China would offer help without hoping or implicitly asking for something in return.

Yet China has offered help to Europe in a conditional way because most of its domestic constituency feels uneasy about spending money on rich Westerners while the poor Chinese still have to make sacrifices. However, the deep root of this sentiment is the idea of a misalignment of interests between China and the rest of the world.

This is a legacy of the time when Imperial China was and felt isolated from the rest of the world. This is false now: a global economic crisis would not spare China, and a political crisis in Europe would hurt China in many ways. With foreign trade making up some 40% of its gross domestic product, China has no barrier high enough against international turbulence.

The only real barrier against international contagions (economic or otherwise) is taking an active role in international decisions and looking for the right alignment of its own interests with those of the rest world, rather than always playing a passive, conservative role that confines China to a corner.

This will require an overhaul of the Chinese mindset, almost a cultural revolution in Chinese understanding and domestic management of international affairs. The threat is that if China doesn't embrace it, China could become more isolated politically and subsequently also economically.

This overhaul will be difficult. In 1997, China's defensive international posture coincided with the requirements of the situation then: defend the Hong Kong dollar and thus defend the other currencies from devaluation. Now China needs to be pro-active, creative, and imaginative - something that is full of risks domestically, as if something goes wrong, one or another faction will jump in and take advantage. Yet, the long-term risks could be greater, compromising China's future standing in the world.  (2011-10-04 Asia Times)


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