August 28, 2011
Austerity measures in the European Union are creating widespread investment opportunities for China, writes Faculty Fellow Mark Blyth in his essay titled “China’s European Shopping Spree” in Foreign Affairs.
In the essay, Blyth outlined the downfalls of austerity measures in a democracy, the potential for national security issues to arise out of financial instability, and the links between the 2008 financial crisis, the Greek debt, and a possible Chinese buyout of European technological, aerospace, and financial assets.
China buying “only half of all outstanding Greek sovereign debt” would both aid the financial crisis experienced in the EU and allow China to buy defense-related European assets, including aerospace and technology.
Aftershocks of the 2008 financial crisis reached Europe within a year, with austerity becoming “Europe’s preferred policy to avoid the perils of multiple eurozone defaults,” according to Blyth. He defines austerity as “a form of internal deflation through government cuts that reduces wages, prices, and public spending,” eventually creating domestic instability, downgrades, and yield spikes –
necessitating more bailouts, adding to already growing debt.
According to Blyth, if the European recession were to deepen further, Europe may be pushed to seek a “revenue source … to offset the secondary financial crunch” in sales of technology, aerospace, and financial assets to China. “This scenario may seem far-fetched,” Blyth concluded, “but it is possible.”
The essay was also featured on the CNN “Global Public Square” blog.
Elsewhere, on the TripleCrisis blog, Blyth also wrote this: "The European sovereign debt crisis is little more than a huge ‘bait and switch’ perpetrated on the publics of Europe, by their governments, on behalf of their banks. We need to remember that what we refer to today as the ‘European Sovereign Debt Crisis’ began as a private sector financial crisis back in 2008, when ‘too big to fail banks’ ... quite unexpectedly (to some) blew up. Fearing a financial Armageddon, governments transformed private bank debt into public debt via bailouts, lost revenues, lower growth, higher transfers, and yawning deficits. The unavoidable result across the European continent was a massive increase in government debt. While painting this as a story of fiscal irresponsibility has some plausibility in the Greek case, it simply isn’t true for anyone else."
By Watson Institute Student Rapporteur Anna Andreeva ‘12