Greece-Proofing China

BEIJING – Despite repeated assurances by European Union leaders, after more than two years, there is still no light at the end of Europe’s debt-crisis tunnel. Recently, the president of the European Commission, José Manuel Barroso, referring to a possible Greek exit from the eurozone, told the European Parliament that there is no “Plan B.”

Barroso’s statement was meant to be reassuring. But, after so many disappointments, China cannot accept at face value the assurances of European politicians, which even they themselves do not know whether they can redeem. China should have its own Plan B in case Greece has to leave the eurozone.

Indeed, it is increasingly likely that Greece will renege on its bailout obligations. If that happens and the “troika” (the European Commission, the European Central Bank, and the International Monetary Fund) cuts off financial support, Greece’s exit from the euro will become all but inevitable. In that event, China must be prepared for any ensuing global financial turmoil and longer-term consequences.

For starters, Chinese officials should be under no illusion that the country will be immune to financial contagion. A “Grexit” would hit European banks that hold peripheral eurozone countries’ sovereign bonds. Shock waves from the deleveraging would, in turn, spread to emerging markets like China.