The 8th Asia-Europe Meeting (Asem) came to a close today, following two days of wide-ranging discussions between 40-odd heads of state and government. The main issues raised included global economic governance, climate change and the combating of terrorism and piracy.
In the years since 1996, when Asem was set up, the comparative strategic weight of Asia has strengthened in relation to Europe, in large part thanks to economic growth in China and India. With Europe weakened by the global financial crisis and the sovereign debt issues affecting many of its countries, this year’s summit saw Asian leaders setting the agenda, with Europe agreeing to cede some power in fora like the International Monetary Fund (IMF).
European Council president Herman Van Rompuy said the EU supported “the implementation of the IMF quota reform by the Group of 20 (G20) Summit of November, to adequately reflect the relative weight and responsibilities of the IMF members in the world economy”. G20 leaders had already agreed to a shift in quota share at their 2009 meeting but Europe, which currently accounts for nine of the 24 seats on the IMF board, has been finding it difficult to agree on just how to go about this.
In a meeting of EU economic ministers last week, it was announced that two of the positions held by the EU at the IMF might be given up to make room for emerging countries like China and India. Given that voting power is also directly linked to financial contributions to the IMF, pressure on China to increase its share is a quid pro quo that many European leaders want in exchange.
China’s currency was another issue that garnered attention at Asem. European leaders urged Beijing to revalue the yuan, but China remained unyielding, with Premier Wen Jiabao insisting the exchange rates of major reserve currencies must be kept “relatively stable”. Following a meeting with Wen on Tuesday, the chairman of euro zone finance ministers, Jean-Claude Juncker, told reporters he believed “China’s real effective exchange rate remains undervalued”.
EU’s China worry
European leaders are worried that as a result of an undervalued yuan, their own currencies will become overvalued, stifling their already fragile economic recovery. France, which takes over the presidency of the G20 from next month, has put reforming the international monetary system at the top of its agenda, hoping to draw China into multilateral talks on currency coordination. French President Nicolas Sarkozy told Asem the monetary imbalances were a risk to the global economy.
China and the EU will have a bilateral summit tomorrow, where the issue will be raised again. However, although Beijing has recently indicated some flexibility on the yuan’s exchange rate following months of a fixed peg to the dollar, it is unlikely that European pressure will yield any substantial results.
With the EU struggling to tame huge government deficits and debt, it is cash-rich China which holds the world’s largest foreign currency reserves and hence the trump cards. Premier Wen Jiabao effectively pre-set the tone of China’s bilateral summit with the EU during a weekend visit to crisis-hit Greece. Addressing the Greek parliament last Sunday, Wen said Beijing would buy Greek government bonds and he asserted that China was committed to “supporting” the euro.
China pledged $5 billion to finance the purchase of Chinese ships by Greek shipping companies. Earlier in the year, Chinese company Cosco undertook the construction of up to 15 dry bulk carriers in Greece. It had already taken over the cargo management at Piraeus, the eastern Mediterranean’s premier dockyard, on a 35-year concession worth $1 billion last year.
In contrast to China’s muscle in Greece, India has played almost no role in helping the struggling nation back on its feet. On Tuesday, however, Indian Vice President and representative at Asem, Hamid Ansari, met Greek Prime Minister George Papandreou. The latter expressed interest in cooperation with India in the shipping industry, although no details were elaborated. The two also talked of increasing bilateral tourism and exchanging experiences in fighting terrorism.
