Senior fellow Arvind Subramanian's op-ed piece on the need for a Chinese bailout of Europe was featured in The New York Times.
From the Article
EUROPE is drowning and needs a lifeline. A series of marathon meetings this week yielded a new set of proposals, but what they depend on is cash — and lots of it, perhaps trillions of dollars — to save Greece and the European banking system and to prevent financial contagion from spreading to Spain, Italy and even France, which would destroy the euro zone as we know it. Where to turn for help? The answer is obvious: China.
Indeed, the call by President Nicolas Sarkozy of France this week to President Hu Jintao of China, seeking support for the European Financial Stability Facility, could represent a major change in the global landscape: the consolidation of China’s economic dominance at the expense of the status quo powers — the United States and Europe.
Despite the agreement among Europe’s leaders on Thursday to recapitalize banks on the Continent, the reality is that Europe cannot muster this cash on its own. In part, this is because most countries are fiscally stretched and even Germany, with a debt-to-gross domestic product ratio above 80 percent, is reaching the limits of its check-writing ability. But it is also because Germany seems reluctant to transfer resources, either directly through fiscal means or indirectly through the European Central Bank.
And with a United States essentially sidelined because of its own economic and fiscal weakness, it is even less of a surprise that the S O S is going out to China. Only China, with its $3 trillion in reserves, is now able to provide the magnitudes of relief that Europe desperately needs.
What should China do? So far, it has opted not to be an active financier of the European countries threatened by crisis. But that is increasingly becoming a less tenable position. China is the world’s major exporter, and averting economic collapse in the indebted importing countries of Europe will be very much in China’s interest.