France's Sarkozy to discuss crisis with China's Hu

President Nicolas Sarkozy will seek support from Chinese President Hu Jintao on Thursday for Europe's handling of the euro zone debt crisis, amid signs of growing concern in Beijing.

Updated: Aug 24, 2011, 11:51 AM IST
Paris/Beijing: President Nicolas Sarkozy will seek support from Chinese President Hu Jintao on Thursday for Europe's handling of the euro zone debt crisis, amid signs of growing concern in Beijing.

Chinese Vice Foreign Minister Fu Ying warned on Tuesday that the euro zone could collapse if it did not pull together, just a day after China's leading official newspaper likened the bloc's debt crisis to the Black Death pandemic.

Sarkozy, who will stop in China this week before visiting France's Pacific territory of New Caledonia, may be pressed by the Chinese for stronger action to tackle the euro zone crisis.

"China will ask France and Germany to take on more responsibility to help out...other euro zone countries that have debt problems," said Xi Junyang, a professor of international finance with the Shanghai University of Finance and Economics.

Along with Germany, France has resisted calls from other countries in the euro zone to expand the zone's 440 billion euro bailout fund and introduce joint issuance of bonds by countries in the bloc as ways to address the crisis decisively.

Sarkozy is unlikely to pledge any specific, fresh action to China, but he may obtain another public expression of support from Beijing, which could help ease jitters in financial markets.

"China will reiterate its confidence in the European economy and the euro, and may even promise to continue to buy euro bonds and other financial assets," Xi said.

Sarkozy, who chairs the Group of 20 nations this year, spoke by telephone with U.S. President Barack Obama on Tuesday on the state of the global economy and the turmoil in the global markets, agreeing on the importance of a concerted response, including via the G20, to spur growth.

The French leader may sound out Hu on the possibility that the G20 - which played a vital role in coordinating stimulus efforts at the height of the financial crisis - take further action. Sarkozy will likely also push his own agenda for the G20 presidency, including tackling global economic imbalances such as China's current account surplus and the valuation of its yuan currency.

International talks on these broader issues have proved difficult, however, and little if any progress seems likely this year.

Sarkozy will meet Hu at 5 p.m. local time (0900 GMT) on Thursday for talks followed by a dinner. He will fly on to New Caledonia the same night, for his first visit to the archipelago territory since taking power in 2007.

On what will be Sarkozy's sixth visit to China as French president, the two leaders may also discuss a Franco-German proposal to tax financial transactions, a highly divisive idea that would only be effective if supported by major economies.

With Sarkozy flush from the success of the French-led military intervention in Libya, he may also take the opportunity to press Beijing on its opposition to sanctions on Damascus as Western governments seek to raise pressure on Syria.

In Biden’s Footsteps

Sarkozy arrives days after a visit to China by US Vice President Joe Biden, billed by analysts as a mission to convince the largest holder of US debt that its investments were safe.

With about a quarter of China's record foreign currency reserves of more than USD 3 trillion held in euro assets, Beijing has been dismayed by the threat to the euro.

"For China, the replacement for US debt was European debt. But then when there were problems with European debt, the replacement is US debt. So there's really nothing China can do right now," said Li Jie, a professor at the Central University of Finance and Economics in Beijing.

Finance Minister Francois Baroin, travelling with Sarkozy, is due to remain in China on Friday to prepare the G20 agenda.

France will chair a meeting of G7 finance ministers in Marseille on Sept. 9-10 to discuss the global economy, followed by a gathering of G20 finance ministers in Paris in mid-October.

Sarkozy has said Chinese backing is essential for France's G20 goals, which include a roadmap for tackling economic imbalances and measures to reduce market speculation and commodity price volatility.

The G20 presidency has led to a warming in Sino-French ties, strained by Sarkozy's meeting with the Dalai Lama in 2008, prompting some Chinese citizens to boycott French goods.

The two leaders last met in March, also in Beijing, when Sarkozy visited China to attend a seminar in the city of Nanjing on ideas to reform the international monetary system, which coaxed Beijing toward discussion of the yuan's valuation.

Bureau Report