The second and third largest global financial economies have recently indicated support for Europe’s recently rolled out rescue plan. China and Japan, second and third largest economies respectively, have verbally indicated their support to help resolve the European financial crisis that is occurring.
The recently unveiled rescue plan supports a decisive and quick plan of action that will utilize measures to address the European financial crisis. This plan is labeled as the European Stability Mechanism. This particular plan calls for an ongoing €500 billion fund to be maintained to address present and potential future financial crisis.
At a seminar in Tokyo, both Japan’s Vice Finance Minister – Takehiko Nakao – and Deputy Governor of the People’s Bank of China – Yi Gang -verbally indicated their willingness to purchase bonds that would be issued by the European Stability Mechanism.
This action and subsequent verbal commitment came as good news to the global financial community. This is because the International Monetary Fund had sounded the alarm about even greater financial risk to Europe and the world if the financial crisis was not addressed soon.
Added to the mix are Spain’s economy and the financial woes that they are facing. In addition to the significantly high unemployment rate and the austerity measures that have been implemented and new ones that are being considered, Spain is in a new financial danger zone as they ponder the need to ask for bailout processes to be implemented. Contingent upon providing these bailout measures is Spain’s willingness to embrace the accountability measures that will be imposed.
At that seminar in Tokyo, Mr. Gang indicated China’s willingness to work and support the European Financial Stability Facility and the European Stability Mechanism. In addition to offering support, the leadership from these two countries also offered advice on how to handle the financial crisis that is occurring.
Specifically, China’s leader suggested that now sooner than later was the time for action to address and resolve the European Union financial crisis. In addition, he challenged the individual countries to also do their part to address the financial issues being experienced.
Japan’s Financial Minister – Koriki Jojima – also asserted that now rather than later was indicated in order to provide a solution to the financial crisis and put into action measures that would provide financial stability.
Driving these affirmations from China and Tokyo to support actions being considered is the export process critical to Japan and China’s economy. This is due to the fact that China and Japan have economies that depend hugely on exports to a global marketplace. Consequently, the global financial slowdown has hindered both of these economies with a reduced demand on Japanese and Chinese exports.
Both of these countries have experienced a slowdown of their economy. China is at their lowest financial growth in over three years and Japan’s economy has diminished over the last two consecutive quarters through the month of December.
To date, the European Financial Stability Facility has committed a total of €192 billion in support of Greece’s, Portugal’s and Ireland’s economy.
The European Financial Stability Facility is being replaced by the European Stability Mechanism midyear in 2013. They will run in concert, until then, to help resolve these financial issues being faced by Europe.
The European Stability Mechanism will be empowered to lend money to individual European countries, provide lines of credit and loans to banks and empowered to be involved in bond markets.
Additionally the ESM will be authorized to infuse capital into banking institutions as soon as a supervisor has been identified.
