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Dec

By CHRISTOPHER SWANN and EDWARD HADAS

The BRICS leaders: a new, rapidly growing force (Source: www.bbc.co.uk)

 

Rescuing the wealthy euro zone is a tough sell for relatively poor China. But the Middle Kingdom could parlay some of its $3.2 trillion of reserves into greater international clout through the International Monetary Fund, currently headed by Christine Lagarde. It would be saving a big export market and preserving its ability to diversify the currency it holds.

After the 2008 financial crisis, I.M.F. member states roughly trebled the institution’s lending capacity. But now that seems not nearly enough. Its remaining firepower of about $400 billion is only about a third of the gross financing needs of Italy and Spain over the coming three years, Barclays Capital reckons. Should it be called upon to play a major role in stabilizing the euro zone, the I.M.F. needs more money, quickly.

The fund’s most obvious potential benefactor outside Europe is China. Beijing can perhaps look for inspiration to Saudi Arabia starting in the mid-1970s. Blessed with surging oil revenue, the Arab nation ratcheted up its contributions to the I.M.F. That earned it a much bigger role at the fund. Saudis still have a 2.8 percent I.M.F. voting share, far larger than the country’s 0.8 percent share of global G.D.P. China, which is today underrepresented at the fund compared with its economic heft, could pull something similar. It might even secure pole position to name the next fund chief.

Self-interest could figure heavily, too. With almost a fifth of its exports going to Europe, China can ill afford an economic crisis in the euro zone. Helping to bankroll the continued existence of the euro would also ensure China has access to a reserve currency other than the dollar. Financing the I.M.F. is also pretty safe — its loans to debtor nations tend to get repaid ahead of anyone else’s.

Even done indirectly via the I.M.F., there’s still the question of why a nation with some 250 million people living in poverty should bail Europe out when much richer Germany, for instance, isn’t yet doing so. But aside from feeding China’s growing geopolitical ego, it could make sense. If the euro zone crumbles, pulling more of those people toward affluence would surely become much harder.

BRIC Power

For centuries Christendom was an idea that shaped reality. The kings, nobles and most of the people of predominantly Christian lands believed they were bound together by their common religion. The European Union is a distant heir of that common identity. In the last decade, the concept of the BRIC bloc of developing nations has played a similar role in geopolitics.

The acronym was first used in print by Jim O’Neill of Goldman Sachs a decade ago this week. The economist wanted a catchy way to identify a great theme — the rise of the world’s largest emerging markets. He identified Brazil, Russia, India and China as the most significant representatives of that trend. Read more…

As published in www.nytimes.com on November 28, 2011 (a version of this article appeared in print on November 29, 2011, on page B2 of the New York edition with the headline: China’s Gain In Helping Europe).

 

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