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China set to boost euro zone rescue fund: Financial Times

29 October 2011 No Comment

China is ready to pump money into the euro zone’s bail-out fund if European leaders can convince it the investment is safe, senior government advisers told the Financial Times on Friday.

And another source told the paper the cash-injection could possibly top US$100 billion (S$124 billion).

China needs assurances that other countries would contribute to the fund, which will be used to buy debt issued by countries in financial difficulties, the business daily reported.

It also needs to be sure that European leaders will refrain from criticising China’s foreign exchange policy, the FT added.

Mr Li Daokui, an academic member of China’s central bank monetary policy committee, told the paper it was in China’s ‘long-term and intrinsic interest to help Europe’, which is the Asian powerhouse’s leading trade partner.

Mr Li admitted the Chinese government might face domestic opposition, and that it needed to convince the people that China was not ‘just a source of dumb money’.

Another source told the paper that China might be willing to contribute between US$50 and US$100 billion dollars.

‘If conditions are right then something a bit above US$100 billion is not inconceivable,’ the source added.

French President Nicholas Sarkozy announced at a summit in Brussels on Thursday that euro zone leaders had agreed to leverage the 440-billion-euro European Financial Stability Facility to a trillion euros.

Finding creditors to boost the fund is one of the keys to successfully implementing the plans, along with making banks agree to write down billions in Greek debt and recapitalising the banking sector so it can absorb the hit.

The rescue fund, the main weapon against the crisis, has already bailed out Portugal and Ireland, and would be tapped in a new Greek bailout.

Source

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