January 4, 2011
The Christmas period had a number of news reports – certainly in the UK press – about the current euro currency problems. There were two main topics that stood out.
1. Estonia joining the euro club. A couple of the stories I saw took that stance that ‘perhaps news of the problems hadn’t reached up to Estonia. Perhaps they haven’t. Much more likely is that the UK angle on reporting these things is so skewed that whatever happened it must have been wrong.
The ideas that Estonia was joining to a) help their own economy and international trading position and b) to help maintain confidence in the currency, were completely overlooked.
As someone that has sat on the fence for years about the possibility of the UK joining, I am perhaps not the best person to comment. But for a small country, such as Estonia, there would appear to be many advantages to using the single currency.
2. China is offering help to buy soveriegn bonds of European nations in financial trouble. This is a real minefield and one that could lead in all sorts of directions. I do not pretend to understand it all.
However, in financial circles there has been a joke for many years that the vast majority of Washington’s economic decisions are made in Tokyo, Beijing and the Middle East, since these are the places owning the largest amounts of Treasury debt. Perhaps Bermuda ought to be added to that list since a great many hedge funds ‘operate’ from the island.
This may prove to be the golden opportunity for China to elbow it’s way into decision making circles in Europe. Once someone holds enough financial control – usually by buying assets that others are reliant upon – the decision making structure changes. This paraproprietary control is well understood in the investment management business (the power wielded by the average 28 year old pension fund manager is awesome) but less so, I think, in politics.
If the selling of large amounts of government debt has the potential to crash an economy, politicians may become open-minded (or forced into it!) towards accepting other policy directions. The United States has avoided mentioning this for years, but it must exist.
Thus, to the title of this blog. If China is allowed to buy as many government bonds as they see fit – especially in nations that really need buyers and will be reliant upon them not selling for years to come – who will have the economic power in Europe then?
Will it be the European Central Bank or perhaps some new organisation, perhaps named the European Bank of China?financialguy