1. Bloomberg – Germany spurned investor calls to maximise financial firepower to calm markets, saying its fast- track proposals for European Union treaty change are key to solving the euro-area debt crisis. Chancellor Angela Merkel will deliver a speech on the crisis to the lower house of parliament in Berlin on Dec. 2, previewing a Dec. 9 summit of European leaders that is due to discuss proposals for treaty change.
As the largest contributor to euro-area bailouts, Germany is stepping up its demands for treaty change to lock in tighter budget controls for the 17 euro member states as the chief means of tackling the debt crisis and restoring market confidence. Michael Meister, parliamentary finance spokesman for Merkel’s party, has said that fiscal integration is a precondition for any German rethink of its opposition to “joint liability.”
The fastest-growing major economy in the world is keen to invest in infrastructure in Western Europe, particularly in Britain, Lou Jiwei, the head of $400 billion China Investment Corp (CIC), wrote in the Financial Times at the weekend.
Indeed, Commerce Minister Chen Deming said China will send a trade and investment delegation to Europe next year, where potential investments will be on the agenda.
“Some European countries are facing a debt crisis and hope to convert their assets to cash and would like foreign capital to acquire their enterprises,” he told a gathering of Chinese firms with overseas investments.
“Overall, Europe is not a resources play, but its manufacturers are what would most interest us, with their market, their technology, and their strong experience.”
CIC is particularly interested in infrastructure projects where governments could offer lower taxes or discounted bank loans in return for investment, Lou wrote in the Financial Times.
However, CIC indicated some caution about investing in Spain, whose borrowing costs have surged over fears of European debt contagion.
A visiting Spanish minister was met with polite disinterest earlier this month when he tried to interest CIC in upcoming divestments of state holdings in so-called cajas savings banks, in the national lottery company, airports and other infrastructure, sources said.
Chen indicated that China also faces its own investment constraints, noting expectations for a slowdown in China’s economic growth next year.
Annual inflation in 2011 is likely to be about 5.5 percent — overshooting a government target of 4 percent — and inflationary pressures will continue next year, he said.
Another constraint, analysts say, is that China may not be a deep pocketed as it seems. They estimated that out of a foreign exchange arsenal of $3.2 trillion, only $100 billion may be spare per year to spend.
Euro Resolution 1. Europe’s leaders will agree to more bailouts that will kick the can down the road for a while longer.
Euro Resolution 2. The Euro-zone will break up.
These three scenarios are:
* Peripheral countries leave the Euro-zone and go back to their own currencies. e.g., Greece, Italy, Spain, etc. This would leave Germany and France in the “Euro-zone.” The value of the Euro would rise sharply, and the value of the new country-currencies would fall sharply. This would restore the competitive balance (with respect to exports) by making France and Germany less globally competitive and Italy, Spain, etc., more competitive. Doing this in an orderly way would require years of planning, just as the phasing in of the Euro required years of planning. We don’t have years. Or months. Or even, possibly, weeks.
* Germany withdraws from the Euro-zone and launches its own currency; the rest of the countries remain in the Euro-zone. If this happened, the value of the Euro would crash and the value of Germany’s currency would soar. The same balance of competitiveness would be restored. Again, this would take years to do in an orderly way.
* The Euro-zone ceases to exist and all countries go back to their own currencies.
Euro Resolution 3. Full fiscal integration with the creation of a full-fledged central bank and Euro-bonds.
Euro Resolution 4. Collapse