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Greek rescue prevents global havoc

07-25-2011 09:27 BJT

By Gao Changxin (China Daily)

SHANGHAI - Eurozone leaders have agreed on a massive rescue package for debt-stricken Greece, in the most determined effort yet to stabilize the euro and avoid default contagion to the zone's other debt-ridden nations.

The package is the eurozone's first comprehensive and long-term measure to save the most troubled economy in the region.

Economists say it will help prevent Greece's debt crisis from rippling through the 17-nation currency area and wreaking global financial havoc. They say it lays a firmer foundation for China to continue its growth, which has recently shown signs of slowing down.

In an emergency summit in Brussels on Thursday, leaders from the 17-nation bloc agreed a second rescue package to provide Greece with an extra fund of 109 billion euros ($157 billion) and a contribution from private sector bondholders estimated to total as much as 50 billion euros by mid-2014.

"The leaders in the eurozone have apparently felt that the debt problem can no longer drag on ... the recent rout of the zone's government bonds shows that the market has lost confidence (in the zone's ability to tackle its debt crisis)," said Wang Tao, head of China economic research at UBS Securities.

While a default by Greece alone might not have many far-reaching effects, the fear had been that its failure to stay solvent could lead to the panicked selling of other European bonds. That could make it impossible for troubled countries, including Ireland, Portugal and Italy, to borrow at a reasonable interest rate and finance themselves.

"In the scenario where even the sovereign bonds are unsafe, you can imagine what will happen to corporate bonds and other kinds of securities," said Wang Jianhui, chief economist with Southwest Securities.

"Large-scale default by Greece will equal the collapse of 10 Lehman Brothers. That will be bad for everyone."

For China, showing confidence in the eurozone will help its exports to the region, China's biggest trading partner, and prop up the nation's economic growth, said Dong Xiaojun, a senior professor at the Chinese Academy of Governance.

This week, HSBC's China purchasing managers' index fell to a 28-month low of 48.9 in July, down from 50.1 in June, marking the first time the gauge has indicated a contraction since July 2010.

"The rescue package will boost consumers' confidence in the eurozone, making them more willing to spend, including on goods imported from China. That will be beneficial for China to continue healthy growth," said Dong.

In the first half, China's export growth slowed to 24 percent from 35.2 percent in the same period of 2010.

Editor:Wang Chuhan |Source: China Daily

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