China appears to be concerned that a new Greek Debt crisis could lead to a new global financial crisis and even collapse the Eurozone which would have a huge impact on China. These concerns are expressed in a commentary entitled “A Greek Crisis Could Impact China’s Market” published in Global Times on Feb. 22, by Prof. Liang Haiming, chief economist of China Silk Road Valley Research Institute, a Guangzhou-based think tank. While his analysis might be flawed, he expresses real concern for the possibility of a major crisis, if not the collapse of the Eurozone, if the Europeans don’t change their policies.
Liang writes that while everyone is preoccupied by President Donald Trump’s Tweets, there are “hidden dangers from Europe, especially regarding the Greek debt problem or even a fresh outbreak of Greece debt crisis, which could impact countries across the globe, including China.”
After reviewing the unsustainability of the Greek debt which could reach 200% of GDP with zero chance of the collapsing Greek economy “growing” out of the crisis as Greece’s creditors assert, he writes, “Greece’s debt issue has become a major hazard for this year’s global financial markets.” Furthermore if countries decide to leave the Eurozone it “would push the euro to the verge of collapse. Letting the euro fall to pieces would further hit international financial markets, including China.”
Liang fears the Europeans would deal with the crisis by “introducing negative interest rates and quantitative easing, leaving the unresolved problems for Europe’s next generation.” Given the fact that QE has failed both in the U.S. and Japan, “the money-printing method in the EU would put the euro in a perilous state.”
He also warned that if the Eurozone splits between Germany and the other northern countries and the south, or the countries in the south are forced to adopt their own currencies, it could also induce unforeseen “financial shocks into the global markets” which will affect China, as well as other nations.
“Hence we need to think and take precautions,” he warns.