Stephen King: Will sending around the begging bowl really solve the eurozone crisis?

Economic Outlook: The Chinese should be able to provide more than loose change to help the eurozone

So now we know. The solution to the eurozone crisis lies in passing around the begging bowl. Investors may have reacted with euphoria to the announcement that the eurozone bailout fund would rise from €440bn (£386bn) to well over €1 trillion, even after yet another Greek bailout. But policymakers still have to explain precisely where the money will come from and how it will be spent.

One option for spending the money lies with the creation of an insurance fund designed to guarantee perhaps the first 20 per cent of losses on government debt issued in coming years. The idea is to persuade investors that buying sovereign bonds issued by the likes of Italy and Spain is relatively risk-free. If enough investors believe the scheme might just work, yields on Italian and Spanish government debt should fall, leading to lower borrowing costs and, in turn, a much-needed boost to economic growth.

Yet the devil is in the detail. Over what period of time should the new bonds be issued? The cost of protecting bonds with five-year maturities, for example, would be a lot lower than the cost of protecting bonds with a 50-year lifespan. Which countries should be entitled to protection? Presumably only those with coherent medium-term fiscal plans should be helped. Who, though, decides on the degree of coherency? What about the massive stock of existing bonds that would presumably have no protection? Might investors shy away from these, leaving yields still excessively high? That, sadly, has been the case so far, with interest rates on the latest slug of new Italian debt rising above 6 per cent.

It's increasingly clear, though, that the solution rests not only on the ingenuity of any technical plan but also on the eurozone's ability to connect with those bestowed with deep pockets, most obviously the Chinese. Which is why Klaus Regling, head of the European Financial Stability Facility (in effect, the eurozone's bailout fund), went to Beijing even before the ink had dried on the agreements reached last week. The Chinese aren't short of a bob. If they feel sufficiently generous, they should be able to provide more than just loose change to help the eurozone out of its crisis.

The oddity about all this is that it's not only the Chinese who have large amounts of spare cash. The Germans do too. Both countries have run persistently large balance of payments current account surpluses in recent years. In effect, their domestic savings are higher than their domestic investment. The surplus savings have to find a home somewhere. China has mostly invested in the US. Germany has also placed its faith in Uncle Sam. But unlike China, Germany has also poured a huge amount of money into southern Europe.

The begging bowl has come out now because Germany no longer has an appetite to invest heavily in Italy, Spain or Greece. That's hardly surprising. With a massive haircut on Greek government debt part of last week's deal, Germany has lost any vestige of enthusiasm for offering support to southern neighbours. The way Germany sees it, good taxpayers' money has chased bad bank loans down the Athens plughole. What is the point of lending Greece more when the money provided so far has led to a huge haircut and scant evidence that Athens can deliver anything but empty promises?

So the northern European creditors seem to have come up with a wheeze. Persuade the Chinese that Europe is committed to the eurozone's survival; stress that Silvio Berlusconi means what he says about Italian budget deficit reduction; emphasise to Beijing that Greece's problems are in the past; urge the Middle Kingdom to take the European bank recapitalisation plan seriously and tell Chinese policy-makers that buying paper issued by European governments is safe.

In other words, northern Europeans plan to persuade China to believe things that northern Europeans themselves no longer believe. Klaus Regling has become the chief proselytiser for a group of eurozone atheists who nevertheless want others to find the faith. Perhaps, for Mr Regling, television evangelism beckons.

The Chinese must find all this very funny. For many years, they have been portrayed as the bad guys, deliberately keeping their exchange rate undervalued, living off their super-competitive exports, consuming insufficient Western goods and stealing Western jobs and technology. Now, it seems, they are the saviours of the Western financial system. In a rather unlikely guise, capitalism's Messiah has now arrived. Behold: it's the Chinese Communist Party!

The Chinese, however, have no intention of repeating the mistakes made by the Japanese in the late-1980s and early-1990s. Flush with cash from their domestic financial bubble, Japanese investors acquired US trophy assets – the Rockefeller Center, Pebble Beach – only to go bust shortly after. Admittedly, European government bonds lack the allure of major pieces of New York real estate or Californian golf courses, but the point still holds. The Chinese will tread very carefully.

And, should Beijing decide to be generous with its spare cash, it will doubtless want something in return. Unlike Europe, with its focus on health hazards linked with tobacco, there are plenty of smoke-filled rooms in Beijing within which the Chinese will able to inform Mr Regling and those who follow in his footsteps of their demands.

So what might be uppermost on China's wish list?

Most obviously, Beijing wants allies in its increasingly fractious stand-off with the US regarding the renminbi/dollar exchange rate. But it wants more than this – better access to Europe for its exporters and greater freedom to take large or even controlling stakes in European firms; improved access to Europe's high-tech industries and a bigger seat at the international policy table. Through being kind to Europe, Beijing hopes that Europe will be increasingly kind to China.

There is an oddity in all of this. Within the eurozone, it's increasingly clear that Germany, the eurozone's major creditor, has most of the power. When it comes to bailouts, the Germans are flush with cash and, as a result, can dictate terms. Yet, as the eurozone passes around the begging bowl, the Germans may find themselves joined by the Chinese. If Europe's debtors resent being told how to behave by Berlin, how will they react when Beijing also gets involved? Will Chinese creditors, like German creditors, insist that southern European nations deliver austerity? And how will the democratically-elected governments of those nations react?

Mr Regling may have his heart in the right place. But as he tours Beijing's smoke-filled rooms, showing his wares to potential customers, he is effectively selling the family silver.

European nations can choose to live beyond their means for a while but, in a fast-changing world, there will be a political price to pay. We'll only know how much when the smoke eventually clears.

Start your day with The Independent, sign up for daily news emails
A boy holds a chick during the Russian National Agricultural Exhibition Golden Autumn 2014 in Moscow on October 9, 2014.
Life and Style
love + sex
Ashley Young celebrates the winner for Manchester United against Newcastle
footballNewcastle v United 1 player ratings
Arts and Entertainment
Victoria Wood, Kayvan Novak, Alexa Chung, Chris Moyles
tvReview: No soggy bottoms, but plenty of other baking disasters on The Great Comic Relief Bake Off
Ashley Young celebrates the winner for Manchester United against Newcastle
footballNewcastle 0 Man United 1: Last minute strike seals precious victory
ebooksA special investigation by Andy McSmith
Life and Style
Tikka Masala has been overtaken by Jalfrezi as the nation's most popular curry
food + drink
Arts and Entertainment
Seth Rogan is one of America’s most famous pot smokers
filmAmy Pascal resigned after her personal emails were leaked following a cyber-attack sparked by the actor's film The Interview
Benjamin Netanyahu and his cartoon bomb – the Israeli PM shows his ‘evidence’
Life and Style
A statue of the Flemish geographer Gerard Kremer, Geradus Mercator (1512 - 1594) which was unveiled at the Geographical Congree at Anvers. He was the first person to use the word atlas to describe a book of maps.
techThe 16th-century cartographer created the atlas
Arts and Entertainment
80s trailblazer: comedian Tracey Ullman
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
The Internet of Things: Meet the British salesman who gave real-world items a virtual life

Setting in motion the Internet of Things

British salesman Kevin Ashton gave real-world items a virtual life
Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

Election 2015: A dead heat between Mr Bean and Dick Dastardly!

Lord Ashcroft reveals latest polling – and which character voters associate with each leader
Audiences queue up for 'true stories told live' as cult competition The Moth goes global

Cult competition The Moth goes global

The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

Pakistani women come out fighting

Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
Leonora Carrington transcended her stolid background to become an avant garde star

Surreal deal: Leonora Carrington

The artist transcended her stolid background to become an avant garde star
LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

Education: LGBT History Month

Pupils have been discussing topics from Sappho to same-sex marriage
11 best gel eyeliners

Go bold this season: 11 best gel eyeliners

Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

Cricket World Cup runs riot to make the event more hit than miss...

The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

Katarina Johnson-Thompson: Ready to jump at first major title

After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot