China/EU: It's Christmas and Santa is coming, apparently. Confounding previous Arctic misinformation, he seems to be Chinese and bearing gifts for Europe. Chinese Santa's sleigh is about to whisk into the euro zone periphery, buying up debt. Or at least that is the implication of Financial Times reports that speak of "concerted action" by China to assist stabilisation of the euro zone.
Well, who can tell? But the likelihood that Santa is Chinese looks slim.
Of course China could be Europe's Santa if it wanted to be. Unlike the European Central Bank it wouldn't even need to print the money. The Chinese could use their $2.6 trillion in foreign exchange reserves to hoover up Greek, Irish, Portuguese and Spanish sovereign bonds. The periphery's refinancing problems would be taken away and the euro zone debt crisis would be over, for a long while. But barring some unknown quid-pro-quo, it is hard to see what China would get in return, apart from a pile of debt of countries with serious macroeconomic problems. Greek debt will exceed 150 per cent of the country's GDP in 2011. And so, even though the country is already being rescued by the combined forces of the EU and the IMF, it is still likely its debt will have to be restructured one day. The Chinese Santa might be obliged to suffer a haircut: a hard-to-imagine indignity. His only compensation might be a statue erected in Athens.
It's Athens, however, that casts further doubt on the existence of a Chinese Santa. In October no less a person than Wen Jiabao, the Chinese prime minister, was in Athens when he said that "China supports a stable euro" and would not reduce its investment in European bonds. Some took it as a signal that China might come to the euro periphery's rescue. But Ireland has since headed to crisis and euro zone periphery yields have kept heading up. That wouldn't have happened if the Chinese were buying heavily. And maybe that's why markets appear not to have moved now.
Perhaps Santa will come at Christmas. Though some, of course, doubt he comes at all.
