Bloomberg News

China’s Li Relying on Merkel to Fight Crisis and Spur Growth (1)

May 27, 2013

Li Keqiang and Angela Merkel

Li Keqiang, China's premier, left, and Angela Merkel, Germany's chancellor, arrive at the Chancellery in Berlin on May 26, 2013. Photographer: Sean Gallup/Getty Images

Chinese Premier Li Keqiang said his country will rely on Germany to lead the euro out of its crisis and boost the global economy as European leaders begin to tackle soaring unemployment after three years of budget cuts.

Li, on the final stop of his first trip as Chinese leader, said the government in Beijing will continue to stand by the European Union. He said the fact that Germany was the only EU nation he visited underscored its position and the “very, very important” ties between Germany and China.

“We earnestly hope that the EU resolves these temporary difficulties, and we hope that the euro area can remain stable,” Li told reporters as he stood beside Chancellor Angela Merkel in Berlin yesterday. A strong euro “is also a good thing for China’s own development -- and good for the whole world.”

Optimism over the global economy has dimmed as the pace of Chinese growth slows and the 17-member euro region languishes in recession. European leaders will spend the coming weeks working on plans to bolster growth and address a scourge of joblessness as they shift to fixing the ailing economy.

Germany and France are due to announce joint proposals tomorrow to address youth unemployment under the banner of a “New Deal for Europe.” The blueprint may involve the European Investment Bank “leveraging” 6 billion euros ($7.8 billion) being made available from the EU through 2020 to yield as much as 60 billion euros in loans to tackle joblessness, Germany’s Rheinische Post reported May 13.

Schaeuble, Moscovici

The plan will be aired in the French capital by the German and French finance ministers, Wolfgang Schaeuble and Pierre Moscovici, and by the respective labor ministers, Ursula von der Leyen and Michel Sapin.

The EIB is deploying 40 percent more funds, or almost 70 billion euros, in the next three years to fight unemployment, director Werner Hoyer told Germany’s Bild newspaper in an interview published today.

The boost is a “clear signal that Europe won’t leave states that have undertaken painful reforms and savings to consolidate budgets and strengthen competitiveness in the lurch,” Hoyer said, according to Bild. The EIB will do “everything its power” to counter youth unemployment, he told the newspaper.

Merkel, who will travel to Paris on May 30 for talks on the euro with French President Francois Hollande, said that she welcomes China’s support throughout the crisis and its acceptance of the euro as an “important currency.”

“It’s evident that the European Union is on the way to resolving this debt crisis,” Merkel told reporters. “Now it’s urgently necessary to return to growth and fight unemployment.”

Bilateral Ties

Even as he warned against a trade conflict with the EU, Li said China’s new leadership under President Xi Jinping would seek to intensify relations between the two countries.

China’s reliance on Europe to return to growth comes as Xi last week signaled a tolerance for slower expansion in his country to avoid environmental degradation. Xi told a study session of the Communist Party’s top leadership May 24 that China won’t sacrifice the environment to ensure short-term growth as they make plans to overhaul the economy.

In the euro area, which extended a recession to a record sixth quarter, policy makers have increasingly stressed the need to resolve youth unemployment, which climbed to 24 percent as of March. The figure soared to 38 percent in Portugal and 56 percent in Spain, both recipients of euro bailout funds.

Merkel, speaking at a congress of her Christian Democratic Union party over the weekend, said youth unemployment levels were “unimaginable” and require urgent action.

Additional assistance could also come from a German plan to mobilize funds from its state-owned development bank KfW Group to help ease credit in countries such as Spain, Portugal or Greece, according to Der Spiegel, which cited a letter from Schaeuble to the German Economy Ministry.

Those funds, which would have to be approved by the German parliament, would be in the single-digit billions, Spiegel said.

To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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