Sarkozy wins cooperation pledge from China to resolve debt crisis

Written by Bloomberg | Updated: Oct 28 2011, 10:20am hrs
French President Nicolas Sarkozy conferred with his Chinese counterpart Hu Jintao as European policy makers seek to build support for an enlarged rescue fund designed to resolve the regions sovereign-debt crisis.

Hu hopes that the measures will help to stabilise markets, state-owned China Central Television reported. The phone call between the leaders came hours after a euro-region summit ended with an agreement to boost the European Financial Stability Facility to about $1.4 trillion, leveraging existing guarantees by as much as five times. Japan plans to support the increase, and is waiting to hear from European officials on details for the program, according to a person familiar with the matter.

Sarkozys outreach precedes a Group of 20 summit he will host next week, with Europeans seeking to bolster the role of the International Monetary Fund in overcoming the euro-regions woes. Australias finance chief said that while its appropriate to look at the IMFs resources, Europeans must look to themselves first for bailout money.

The Europeans have their back against the wall and China is the lender of last resort, Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong, said before Sarkozys call.

The French presidents office said in a statement that Sarkozy and Hu agreed to cooperate closely to ensure the G20 can make a decisive contribution to ensure growth and global stability.

Chinese Premier Wen Jiabao has signaled willingness to aid the European Union as financial turmoil within the region threatens to crush export demand in Chinas biggest market. The expansion of the rescue fund and a deal for bondholders to take 50% losses on Greek debt may help Sarkozy and German Chancellor Angela Merkel to convince the world that Europe is getting to grips with the crisis.

China will need time to evaluate this plan very carefully, said Shen Jianguang, a Hong Kong-based economist for Mizuho Securities Asia. What worries China is that there is so much disagreement among European policy makers. It doesnt want to be seen spending money on a plan that even Europeans dont want to support.

Sarkozy and Hus conversation came a day before a planned visit to Beijing by Klaus Regling, chief executive officer of the EFSF, to court investors. China has the worlds largest foreign-exchange reserves at more than $3.2 trillion.