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China to the Rescue!

Concern is rising over Greece’s possibility of a government debt default. Greece’s financial woes are causing some to question the wisdom of the country’s adoption of the euro in 2001. As EU members debate bailing out their troubled neighbor, other players enter the scene.

Greek officials have denied rumors of official involvement with Goldman Sachs to lure Chinese investment in Greek debt. The rumors of Chinese interest in buying Greek debt for a share in the National Bank of Greece sparked national outrage. Since the controversy began, Goldman Sachs, Chinese officials, and the Greek government have responded with adamant denials of such a plan.

The repercussions of a Greek debt default could be massive. At four times the European Union limit, Greece’s budget deficit has hit 12.7% of GDP. Skeptics are taking out the magnifying glass for other EU economies with massive budget deficits, including Italy, Latvia and Spain. Investor doubt of the stability of the euro has driven down the currency against the US dollar and British pound. As newer EU countries, including Latvia and Estonia, are scheduled to adopt the Euro this decade, EU officials can expect more sleepless nights.

Whether or not there is any truth to Chinese interest in Greek debt, the conversation has been interesting. As China bolsters its influence abroad, the responses fall along a range of emotions. In Latin America, an alternative to US investment is often welcomed with open arms. Similarly, in many African countries, governments roll out the red carpet. Iran, Myanmar, North Korea, and Sudan, isolated from most Western investment dollars, appreciate the lack of strings tied to Chinese FDI. However, as the reaction from Europe has proved, many are simply not ready to acknowledge the power of China’s enormous cash reserves. Unless, of course, they are used to buy US debt.

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