UK looks east as eurozone absorbs more rating shocks
George Osborne woos China and Japan while nine EU members downplay credit downgrades
George Osborne today takes advantage of the deepening eurozone crisis by appealing to China to make Britain the "home of Asian investment" in the West.
As France and other eurozone nations reeled from their credit rating downgrades on Friday, the Chancellor embarked on a three-day visit to China and Japan designed to pitch Britain as a strong partner to Asia's rampant economies.
Mr Osborne's visit came as Germany's Chancellor, Angela Merkel, and senior EU politicians played down fears that France's loss of its AAA rating would hit the eurozone bailout fund.
In a speech at the Asia Financial Forum in Hong Kong tomorrow, Mr Osborne will say: "I believe we can make Britain the home of Asian investment and Asian finance in the West."
The Chancellor will meet political and business leaders in Beijing and Tokyo as he drums up British trade in a year when the UK is at the centre of the world's attention for the Queen's Diamond Jubilee and the London Olympics.
Treasury sources said the visit was designed to look beyond the economic uncertainty on the doorstep in Europe to the opportunities for growth from Asia.
Mr Osborne will tell his Hong Kong audience: "Over the last three months, I have spent a lot of time in talks about the eurozone. The problem of high indebtedness in Western economies means these are challenging times for the world economy. But as we look to this difficult year ahead, I want to focus on reasons to be optimistic for the future.
"A richer, stronger Asia is an opportunity for the world, not a threat. The strength of Asian economies means world growth in this decade and the next will be higher than the past 30 years."
Mr Osborne is expected to announce in Beijing two new research partnerships into stem cells and smart electricity grids, among other investment links.
While eurozone trade is weaker than expected, British exports to emerging economies are faring better. Exports to the BRIC countries of Brazil, Russia, India and China increased by 2.3 per cent in the second and third quarters last year.
On Friday night, Standard & Poor's (S&P), one of the big three credit ratings agencies, downgraded France and eight other eurozone members, including Austria, Italy, Spain and Portugal. The downgrade increases their borrowing costs, as the lower the rating the more it is perceived that there is the possibility of default on debts. Some investors will buy bonds only from countries with the fail-safe top AAA rating.
Last night, Treasury sources insisted there would be no "Schadenfreude" at France's loss of its cherished rating, despite senior French politicians last month questioning why Britain had not been downgraded.
But the fear is that S&P's decision could lead to a downgrade of the European Financial Stability Facility (EFSF), the temporary crisis fund guaranteed by eurozone countries. The facility is currently AAA-rated, making it easier to raise money on the bond markets. However, with significant guarantors no longer holding the top rating, there is speculation that the EFSF will either have to cut the amount it can lend to stricken economies or accept its own downgrade.
Mrs Merkel, speaking at an event held by her Christian Democratic Union party yesterday, vowed: "The interest rates for the acceptance of certain bonds had already risen a bit anyway – the work of the EFSF will not be torpedoed. I see no need to change anything regarding the EFSF."
She added that S&P's decision meant that a permanent bailout fund to succeed the EFSF must be set up as soon as possible. Ms Merkel also said the eurozone's fiscal rules must be tightened as soon as possible.
Sharon Bowles, the British Liberal Democrat MEP who chairs the European Parliament's powerful Committee on Economic and Monetary Affairs, told The IoS that a slight downgrade could increase the strength of the EFSF. Investors seeking higher interest rates as a reward for taking slightly greater risks by putting their money outside of the top-rated bonds would be attracted to the EFSF, she argued.
- 1 Cyclist who knocked down three-year-old girl says his life has been 'destroyed'
- 2 A politically correct lefty goes to see Top Gear live – you'll probably believe what happened next
- 3 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
- 4 Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
- 5 Snoop Dogg on why he doesn't regret displaying misogyny towards women
Cyclist who knocked down three-year-old girl says his life has been 'destroyed'
Woman accidentally shoots herself in the head while posing for a selfie
How China's richest man Li Hejun lost $15bn in an hour - and made a fortune
Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
Snoop Dogg on why he doesn't regret displaying misogyny towards women
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
The day that Britain resigned as a global power
Almost a third of school pupils believe 'Muslims are taking over our country', study claims
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
Gay marriage 'Bert and Ernie' cake bakery found guilty of discrimination in Northern Ireland
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...
£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...