Beijing has strong interest in fate of big trade partner, offers help for indebted countries

[Albion]

BRUSSELS — Spain, Portugal and Greece — three of the eurozone's most financially shaky members — in recent months have touted a lifeline thrown to them by China: a promise to buy these countries' embattled bonds.

The pledges from the government in Beijing temporarily took some pressure off European debt markets, but China has been quiet on how much money it will actually invest. What is clear is that China has an immense interest in helping the eurozone, its biggest trading partner, out of its current woes.

On Wednesday, Spain signed more than a dozen business accords with China, two days after Vice Premier Li Keqiang wrote in daily El Pais that his country will keep on buying Spain's public debt as a show of support.

That follows similar deals and promises from China for already bailed-out Greece and Portugal, seen by many as the next weakest link in the 17-country eurozone.

Europe has been fighting a bruising battle to keep its currency union together. But a €110 billion rescue loan for Greece and the €67.5 billion bailout of Ireland have failed to erase fears that mounting debts in several member states might be too much for the struggling eurozone and could eventually even endanger the euro.

A deepening crisis in Europe or a meltdown of the euro — which already appeared to be in a state of free-fall last spring — would hurt China, now the world's second largest economy and holder of massive foreign currency reserves, most of it in U.S. dollars.

Beijing believes that a stable global economy needs at least two lead currencies, and China has already invested heavily in European government bonds to prop up the euro as a viable alternative to the dollar, says Vanessa Rossi, a senior research fellow at Chatham House in London.

Much of China's clout come from its large trade surplus and the savings that result from it, a sharp contrast to the debt woes of some of Europe's governments. Rossi estimates that of China's massive $2.5 trillion foreign exchange reserves, close to $1 trillion are holdings in Europe. That's still far behind the $1.5 trillion invested in the United States, but would imply that China on average now holds about 10 percent of eurozone government debt, says Rossi.

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[Albion]

As I see it China:

1. Wants to gain influence in Europe and sees its chance.
2. Doesn't want amongst the biggest export markets in the world to fail since it would hurt its own economy.

Its a shame they're perhaps going to support the Euro in a way, if the Euro doesn't fail then the individual countries probably won't turn back to their former currencies.
If the Euro survives through this and isn't abolished it needs reforming, but I don't see much they can do to reform a currency which extends across borders as it does.
In my view it'd be better phasing out the Euro, letting it become a trade-only currency and a reserve, something based around the world reserve currency proposed by China and Russia a while ago but for Europe and whoever else were to use it.
With their individual currencies back the countries of Europe would be able to shape their economies better rather than to a "one-size fits all" policy as the Euro creates, especially when it comes to interest rates.