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Chinese economists pessimistic about Europe's prospects

Updated: 2012-06-15 07:54
(China Daily)

Increasing pessimism is emerging from Chinese economists and in the business press about Europe's prospects, following a European Union bailout for Spanish banks and ahead of a general election in Greece that could determine whether the country will stay in the eurozone.

Economist Han Zhiguo posted on his micro blog that the EU has already "spiritually disbanded".

Top-down rescue plans are meaningless and will not achieve their goals, he wrote, and if the crisis is allowed to linger, the future can only be the EU's formal collapse.

Even if the EU does not want to proclaim a formal collapse, said an editorial in the Securities Market Weekly, all it can do is more of the same: more haggling among member states, more halfhearted austerity programs, more rescues and more crises.

The crisis in the eurozone, as an editor's note in Chinese Business News said on Wednesday, is no longer merely a crisis of sovereign debt in some EU member states.

Beginning with the banking rescue in Spain, it is on a path to become a Europe-wide banking crisis that will seriously affect the global banking industry, the newspaper said.

An editorial in, a news portal in Tianjin, a northern port city, said the method being used in Spain's banking rescue is like "quenching thirst by drinking poison".

Spreading epidemic

Even worse, the editorial said, the problem in Spain will spread to other countries. Even Germany is not an exception, as it likes to claim. Germany's government debt is even larger than Spain's, the editorial said.

So the eurozone debt crisis must be a focal subject of the G20 summit scheduled for next week in Mexico.

How to contain the crisis from spreading is not any single country's affair but a global business, because no country can single-handedly deal with a crisis of such potential harm, the editorial pointed out.

At, business commentator Han Wei sounded alarm that the eurozone debt crisis is no longer an economic problem. It has evolved into a political problem and a "gigantic social issue".

Han was dismayed that "in the homeland of Socrates and Plato, there is such a lack of talent that no one seems to be capable of asking the ultimate question of how people are going to spend the rest of their lives?"

At the same time, there is such a lack of interest in building a government on the basis of trust and honor.

An unwillingness to be straightforward is seen in the politics in many countries, the commentary noted.

Financial columnist Chen Sijin argued that for some years now, the prosperity of some Western countries has been a massive Ponzi scheme, in which new debt is borrowed just to repay old debt, as if this is the essence of Keynesianism. "Now the game is coming to its end," he said.

Long-term solutions

In response to the eurozone debt crisis, China should come up with long-term solutions rather than temporary contingency measures, Liu Mingli, an expert at the Institute of European Studies at the China Institutes of Contemporary International Relations, told the website of China National Radio.

"The debt crisis won't be solved in the short term, as it involves many aspects, such as European economic restructuring, institutional design and the welfare system of the eurozone," Liu was quoted as saying.

Steps that China could consider include lowering its dependence on foreign trade and accelerating the upgrading of industrial structure.

In addition to Europe and the United States, other countries are likely to experience a medium- and long-term economic slowdown.

In the financial sector, more contingency plans should be formulated to guard against risk, which many European countries have started already, in preparation for a possible breakup of the eurozone.

As for concerns that Italy might be the next one to need a bailout, Liu said that Italy should be more vigilant about its debt level, instead of relying on a higher appraisal of its economy, financial and debt conditions than four other European countries - Spain, Ireland, Portugal and Greece.

With fears having risen that a Spanish banking meltdown might deepen the eurozone debt crisis and Greece might be exposed to more risk, Italy should be more concerned about its debt.

"Italy's fate is not in its own hands, despite its confidence in its fiscal and debt situations, but depends on the scenario of the whole crisis," Liu was quoted as saying.

As he shifted from being an economist to becoming the prime minister, Mario Monti did make some progress in economic reform in Italy. But he's hardly expected to get the country out of its crisis in a short period, because reform of the welfare system is a time-consuming effort, and there may even be side effects during the process.

Under the current circumstances, Greece is set to exit the eurozone within the next year. But whether it leaves the eurozone or not, Greece will have to carry out difficult adjustments, through which it will gain the opportunity to rebuild its competitiveness, said Zhang Ming, a commentator from the newspaper Investor Journal.

If it remains in the eurozone, Greece can hardly revive its national strength, Zhang said.

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(China Daily 06/15/2012 page17)