Feb. 2 (Bloomberg) -- China supports European efforts to stabilize the euro and is looking into how it can help resolve the region’s debt crisis, Chinese Premier Wen Jiabao said at a briefing with German Chancellor Angela Merkel.
Wen said solving the European debt crisis is “urgent,” and called for greater international cooperation. “China is also considering more participation” in those efforts via the European Financial Stability Facility and the European Stabilization Mechanism, he said.
Merkel’s three-day visit comes as European leaders are trying to raise money to address the region’s sovereign debt crisis. China, owner of the world’s largest foreign currency reserves, has said that while it’s willing to help, it wants more details on Europe’s plans, which could include setting up funding through the International Monetary Fund.
China is “investigating and evaluating ways, through the IMF, to be more deeply involved using the ESM and EFSF channels in solving the European debt issue,” Wen said.
In comments earlier today, Merkel said Europe risks undermining investor confidence if it keeps rolling over debt and should impose budget-deficit caps across the Euro area.
The common currency system requires countries to show budget discipline and the region currently has no way to enforce such restraint, Merkel said, reiterating her previous calls for such limits.
Roll Over Debt
“The more debt that we took on in the past, the more interest we will have to pay in the future and the less confidence investors will have in us,” she said. “We cannot simply roll over today’s debts.”
She said the European Central Bank can’t “just put in as much money as possible because in the future someone has to pay that.” The Greek government needs to reach a deal to reduce its debt and secure a second European Union-led bailout by March 20, when it faces a 14.5 billion-euro ($19.1 billion) bond payment.
Merkel had been expected to discuss the yuan exchange rate and global imbalances when she met with Chinese leaders, a German government official said in Berlin on Jan. 31, speaking on customary condition of anonymity. She is scheduled to meet President Hu Jintao tomorrow.
“How the yuan is going to be developed, how the yuan can be freely convertible -- in these areas we can work together,” she said today.
China’s imports from Germany rose 24.9 percent last year to $92.7 billion, according to Chinese customs statistics. German companies including Volkswagen AG and Siemens AG are among the biggest foreign companies doing business in China.
German Deputy Finance Minister Steffen Kampeter said a more flexible exchange rate policy in China would make a “positive contribution” to the health of the global economy.
“It’s quite clear that many in the western world see a more flexible currency policy in China as a positive contribution to global developments,” Kampeter said Jan. 31 in New York in an interview with Bloomberg Television.
The yuan rose 1.5 percent against the euro last week, following a 1.3 percent increase the week earlier. The yuan traded at 8.2819 yuan to one euro today.
Merkel is scheduled to travel to southern China’s Guangdong Province tomorrow, where she is set to meet with Wang Yang, the top official in the country’s richest and most populous province.
Merkel said there was no other way to handle the dispute over Iran’s nuclear program except by imposing sanctions, and urged China to “make better use of its influence” to make sure Iran does not acquire nuclear weapons. In today’s briefing, Wen said sanctions would not solve the issue.
--With assistance from Nicholas Wadhams in Beijing, Michael Wei in Shanghai and Patrick Donahue in Berlin. Editors: Nicholas Wadhams, John Liu
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