China predicts Greece to stay in eurozone

A man looks at newspapers showing the results of yesterday's referendum in central Athens, Greece, July 6, 2015. [Photo/Agencies]

China believes Greece will remain within the eurozone and the region can solve its current problems, the Foreign Ministry said on Monday.

Ministry spokeswoman Hua Chunying made the remarks after Greek voters decisively rejected the terms of an international bailout.

Ding Chun, director of the Center for European Studies of Fudan University, said, "China wants to see Greece stay in the eurozone, just as Premier Li Keqiang said last week that China is in favor of a united and prosperous European Union and a strong euro."

The question of whether Greece stays within the euro is not something that only concerns Europe - it also affects China, world financial stability and the economic recovery, Li said at the end of an EU-China summit in Brussels.

Ding said: "If Greece leaves the eurozone, the setbacks and disruptions will create lots of uncertainty and risks, which would also be bad for China. That is why China urges the creditors to reach an agreement with the Greek government."

Peter Ho, a professor at Delft University of Technology in the Netherlands who focuses on the Chinese economy, said: "China is one of Greece's top five trading partners. On the other hand, just to keep things in perspective, over the past three weeks, the Shanghai Composite Index has fallen nearly 30 percent, a value that is 10 times Greece's entire GDP.

"So the direct consequences of a Grexit for China are not that large."

He said the risk to China is indirect and likely to emerge in the medium to long term.

"Many people fear that a Grexit could drag down other larger EU economies like Spain, Portugal and Italy. This could affect China, as the EU is China's largest trading partner," Ho said.

“Given the nature of the current situation, China's attitude is correct,” said Dean Andromidas from German-based Schiller Institute, an international political and economic think tank.

“Despite what German Finance Minister Wolfgang Schueable says that a Grexit would have little effect on the Eurozone, it could in fact create a massive financial crisis,” said Andromidas.

“Keep in mind the bailout fund totals almost 500 billion euros and includes the bailout bonds of Ireland, Portugal, the Spanish banks and other countries. All of this debt would very well be considered in default if Greece defaulted. The spillover effect on the rest of the system would be more like a tsunami. Given the level of trade China enjoys with Europe and its holdings in euro assets, the effect on China could be considerable,” Andromidas said.

Hari Tsoukas, a professor of organizational studies at Warwick Business School in the UK, said he believes China's attitude is optimistic.

"The risk of Greece exiting the eurozone has increased after Sunday's referendum," said Tsoukas, who is in Athens.

"It makes it more difficult for the European Central Bank to restore liquidity to the Greek banking system, following Greece's exit from the European Financial Stabilisation Mechanism program and the nonpayment to the IMF."

Donald Tusk, president of the European Council, said an emergency summit of the eurozone countries should be held in Brussels on Tuesday. The call follows previous demands for an emergency summit by Belgian Prime Minister Charles Michel, French President Francois Hollande, German Chancellor Angela Merkel and EU Parliament President Martin Schulz.

Greek Prime Minister Alexis Tsipras said the country will now return to the negotiating table. "Our primary priority is to reinstate the financial stability of the country," he said during an address to the nation.

“Ideally, they should reach an agreement through each party stepping over its red lines. Greece will need to accept changes to the pension system and VAT rates, while the creditors should offer Tsipras a strong promise and ideally a commitment of debt relief,” Tsoukas said.

“The European Central Bank should not pull the plug on the Greek banks, while both parties negotiate. The resignation of Greece Finance Minister Yanis Varoufakis makes the search of a compromise easier,” Tsoukas said.

Sotiris K. Staikouras and Elena Kalotychou from Cass Business School in London, said: “Now everything is about willingness to make things work from both sides. The Greek government needs to send experienced, open-minded and knowledgeable people back to the negotiations table. Europeans need to understand that debts are not paid out of thin air, but with proper infrastructure. This is what EU should be focusing on and urging as well as helping Greece to make it public sector and inland revenue system work as it supposed to be. Sacrifices should be made, but this is the only way to build a solid future with no relapses to the current situation.”

Greece had to ask for an international bailout in 2011 to avoid bankruptcy. The country is now on the brink of collapse after two bailouts totaling 240 billion euros ($266 billion) and six years of depression, spending cuts and job losses.

zhangchunyan@chinadaily.com.cn