TOKYO – Few recent elections have grabbed world attention in the way that Greece’s vote on June 17 did. Now that the center-right New Democracy, which finished first, has formed a coalition government with the center-left PASOK and the Democratic Left, the key issue for Prime Minister Antonis Samaras’s administration is whether it can implement the austerity measures agreed with Greece’s eurozone partners in exchange for continued support from the International Monetary Fund and the European Union.
The situation remains dangerous – and not only for Greece. Spain and Italy face the redemption of government bonds valued at €13.2 billion ($16.5 billion) and €17 billion, respectively, in July, with redemptions continuing every month thereafter like an unstoppable tsunami, ensuring continued turmoil in Europe and beyond.
Given the global menace posed by Europe’s sovereign-debt and banking crises, measures to strengthen the European banking system and encourage fiscal integration gained some momentum at the recent G-20 summit in Los Cabos, Mexico. The summit’s concluding statement declared that countries with ample finances are prepared to provide economic stimulus if growth weakens.
One result of this promise is that pledges to boost the IMF’s funding have now reached $456 billion. These pledges come on top of the $430 billion expansion of IMF funding that was announced in April, so the Fund should have the financial firepower to act in any crisis – if, that is, the money pledged at the G-20 summit is actually contributed.
The BRICS (Brazil, Russia, India, China, and South Africa), which are all members of the G-20, now account for 43% of the world’s population and 18% its economy. Their share of “international responsibility” was revealed at the recent summit: contributions to the IMF of $43 billion by China, $10 billion by Brazil, Russia, and India, and $2 billion by South Africa. Mexico, the G-20’s host, also pledged $10 billion.
This renewed international cooperation was intended, of course, to protect the global financial system. But contributing money also means having a say, and the BRICS – no surprise – are pressing their demand for voting reform in the IMF, and are increasingly offering currency swaps to economically troubled countries.
Various countries, however, are also strengthening their own positions with little regard for the impact of their actions on the international financial system. The most active of these countries is, of course, China, which can call upon its vast and still-rising foreign reserves of $3.3 trillion to push its interests in every corner of the globe.
For example, although China has done little to bolster the Greek government’s balance sheet, its active approach to the crisis has been conspicuous. Prime Minister Wen Jiabao visited Greece in October 2010 and agreed to strengthen cooperation between China and Greece during a meeting with then-Prime Minister George Papandreou – timely support that the weakened Greek government was delighted to receive.
But the form of Chinese support for Greece will likely benefit China far more than Greece in the long term. Indeed, in an editorial published on June 15, China Daily described Greece as a “gateway” for China into Europe. Already, the China Ocean Shipping Company (COSCO) has obtained a 35-year lease to operate the second pier at the port of Piraeus, one of the busiest in the world, for €3.5 billion, and has purchased a truck-loading facility and packaging center in the Piraeus suburbs. The company has also expressed its intention to acquire 23% of Piraeus Port Authority, and is seeking to lease or acquire ports on the island of Crete.
Likewise, though COSCO’s bid for the Thessaloniki Container Terminal met local opposition, Chinese investors are in negotiations with the Greek government to acquire a 20-year interest (2026-2046) in Athens International Airport for €500 million.
China may look like a white knight for Greece, which remains mired in fiscal crisis and severe recession; but this was also a perfect chance for China to go bargain hunting around the world. So instead of using its vast foreign exchange reserves to bolster the international system, China is picking up strategic assets on the cheap.
Consider Iceland, which suffered bitterly following the collapse of Lehman Brothers in September 2008. An enormous Chinese Embassy has been built in Reykjavik with an eye to improving China’s intelligence about future developments in the Arctic Ocean. And Chinese companies’ land purchases in Iceland have been so extensive as to fuel local paranoia, with some investment plans blocked for fear that they might be a stepping-stone to a Chinese military presence.
For almost a decade, people have wondered how China would use its gargantuan foreign-exchange reserves, particularly whether it would challenge the supremacy of the dollar. It now seems clear that China intends to use its foreign reserves to further its own global geopolitical strategy, not to buttress the international system that has enabled its three-decade boom.
As governments and citizens around the world become aware of the influence that China can buy with its deep pockets, is an anti-Chinese backlash inevitable? Or have some countries been so scarred by the financial crisis that they don’t care where their next meal ticket comes from? Time will tell, but there is a danger that Chinese hubris is beginning to extend to global finance.