In the world of exchange rates, especially if it involves a contest for economic stability and recovery between the two largest economic regions on the planet that make up one-half of the global economy ― the United States (US) and the European Union (EU) ― the maneuvering to keep their respective currencies affordable to the remaining half of the world economy that is eager to build itself a better life can be intense.
The United States has it easy relative to the European Union. The US is one large country with a government that can make policy to benefit its exports without feeling like it is sacrificing Massachusetts or California at the altar of the cheap dollar. The European Commission (EC) in Brussels and the European Central Bank (ECB) in Frankfurt have a more difficult job. They have to temporarily sacrifice the warmer southern drags on the European economy just long enough to compete with the declining dollar to keep their export dependent economy on the path to recovery.
As the Hellenic civilization struggles to keep the head of Athena above water, the Sinic to its far east is humming along at a pace which is perhaps more than what it can handle at the moment. China wants to tighten money supply. However, if east looks west when the west is not looking after itself it could in fact help the global economy, no matter what the Nobel committee ensconced by the Norwegian fjords may be thinking. Perhaps, China can bail out Greece if Brussels and Frankfurt don’t want to.
The trouble Greece is in is its government budgets and debt. And China has surpluses on both counts. The government of China can consider investing in the private sector in Greece if only to return the favor of Greece handing off the Olympic torch to China. The fiscal condition of Greece, which was permitted to deteriorate over time by the EC, in spite of the Economic and Monetary Union (EMU) rules of the EU, will take time to repair itself. And this repair could involve medium to long term restructuring to a more efficient government in Greece, hoping that the EU economy as a whole will improve along the way.
In a beggar-thy-neighbor EU where the wealthy northerners may indeed be quite appropriately worrying about themselves first to be in a position to pull the rest along, only tied together by a common currency and a common market, it could be helpful if others around the world, such as China, with the extra cash to spare can pitch in to help out the bottom half of the EU. In parallel, the growth of the EU economy, even if only domestically, will be more beneficial on balance to Europe than worries about a stronger euro, which is material only for the purposes of its exports.
The EU, for a change, may want to consider investing in the United States with the stronger euro (Siemens for example is a strong contender for a variety of services) and let the Chinese provide it capital in yuan toward its domestic investment in countries where it is needed, such as Greece, at least in part if not entirely. This transaction could involve China acquiring or managing some EU assets in partnership with the local countries, no different from Germany helping the Chinese on the Shanghai maglev. In the process, China will be helping itself by putting the renminbi on the path of becoming a viable global currency. Others accepting Chinese money will make China think carefully about the pace of development of its economic institutions. Isolation could breed complacency.
European antiquity needs a facelift. And China could provide the necessary capital having recently given itself one.