By William Pesek
Few events say more about the dismal state of the global economy than Europe looking to developing China for a bailout.
French President Nicolas Sarkozy certainly wouldn't characterize his phone call today to Chinese counterpart Hu Jintao as such. Yet no amount of spin can hide the fact that Europe needs cash to avoid financial Armageddon and China has it. Expect Sarkozy and his euro-area peers to hit up China early and often in the months ahead.
Yet Europe shouldn't get used to China playing the role of sugar daddy.
It's not that China, flush with $3.2 trillion of currency reserves, lacks the liquidity. There are two reasons to believe China will be sparing in purchases of euro-denominated debt. One, it might anger large chunks of China's 1.3 billion population. Two, Beijing may decide it will need its money as 2012 approaches.
While the forces of democracy aren't raging in China, public opinion is playing a growing role in what the Communist Party does. And spending untold billions of state money to help Europe would be a tough sell. China can finesse the issue, claiming it's merely diversifying out of the wobbly dollar. That explanation will only go so far with factory workers struggling with surging inflation.
The global outlook is darkening in ways that worry China. Yes, the nation with the second-biggest economy did a masterful job steering around the crisis of 2008. That will prove harder to do in 2012 should U.S., European and Japanese growth grind to a halt. It would slam China's all-important export engine and increase the need for cash to stabilize things.
Besides, who really believes Europe's crisis won’t get worse? It's great that European leaders persuaded bondholders to take 50 percent losses on Greek debt. It's grand that they boosted the firepower of their rescue fund to 1 trillion euros ($1.4 trillion). Neither step does a thing to change the structural problems in the euro area.
China should indeed do its part to help stabilize world markets. Europe just shouldn't expect lots more Chinese largess to flow its way.
(William Pesek is a Bloomberg View columnist.)-0- Oct/27/2011 16:35 GMT