Euro Crisis: The Second Half Of The Year Will Bring Disaster To China

The weightlessness of the euro makes the recent foreign exchange market "Europe" pale.

In the past week, the euro has been hit by a series of negative news, and the euro has been hitting a low level. In June 2nd, New York's intraday price hit another four year low.

In the face of the precarious foreign exchange market, financial weekly newspaper reporters once again interviewed many executives and experts from foreign investment banks to listen to their insights.

Citigroup Lubin: the biggest victims of Western European crisis are central and Eastern Europe.

Influenced by the "neighbourhood crisis", the crisis in Western Europe has the greatest impact on financial markets in central and Eastern Europe.

Citigroup Global Emerging Market economist DavidLubin told financial weekly newspaper reporter.

Mr Lubin said that the "financial" channel for the spread of the crisis is the European Banking position in central and Eastern Europe; the "practical" channel threatens export growth; and the "theme" channel enables investors to avoid or be short of high indebted central and Eastern European countries.

Fortunately, since the collapse of Lehman brothers, the reliance on external credit in eastern and central Europe has decreased.

Moreover, after the outbreak of the crisis, public debt in central and Eastern European countries remained low except Hungary.

But overall, the sensitivity of the central and Eastern European countries to the euro zone crisis is higher than that of other emerging markets.

Mr Lubin believes that competitiveness is higher, public debt is lower, Western European Banking positions are lower and reluctance to withdraw, and relatively closed economies will be stronger.

In these respects, the situation in Poland, Romania and Ukraine is better than Hungary.

In a press conference at the end of May, Citigroup's global chief economist, WillemBuiter, said that a series of measures taken by the European Union, the International Monetary Fund (IMF) and the European Central Bank (ECB) to stabilize the European financial system were important steps to ensure continued and stable development of the euro area.

However, there are still many measures to be implemented.

WillemBuiter recommends that ESM can continue to expand to more fields and make it permanent. Besides, the assistance obtained through ESM must be provided with clear, credible and binding terms and can be strictly enforced.

On the same occasion, Ms. Cai Zhenzhen, chief economist of Citigroup Asia, believes that the government's tight fiscal policy and tight banking system may further drag the euro zone's economic development, but its impact on Asian countries has not yet appeared.

Citigroup Cai Zhenzhen: the impact on Asia has been highlighted, the second half of the year will "bring disaster to China".

In the past two months, Citigroup has also raised the 2010 GDP growth forecast for major Asian economies, including China (10.5%), Singapore (9.5%), South Korea (5.2%), Taiwan, China (5%), Hongkong, China (4.2%) and Malaysia (7%).

"Asia's economic growth rate may have peaked because of slowing external demand and further regulation of real estate investment by the Chinese government.

In such an environment, Singapore, China, Taiwan, China, Hongkong, Malaysia, South Korea and Thailand will be more affected by the euro area economy and slow down growth. On the contrary, the main driving force of domestic demand in India, Indonesia, China and Philippines is slightly more robust.

"We will see more negative factors in the next few quarters.

While the economic recovery in the US and the emerging world is growing steadily, the macroeconomic regulation and control of the Chinese government will have a more significant impact on the economic growth in the second half of 2010.

Cai Zhenzhen said.

For monetary policy, Cai Zhenzhen said the US Federal Reserve would be able to reconsider more durable monetary policy to deal with the adverse factors brought about by the sharp fluctuations in asset prices in the European market.

Because of the difference between economic growth and inflation, although Asian countries will inevitably increase interest rates earlier than the United States, central banks will strive to avoid premature implementation of interest rate hikes, which will attract more capital inflows, thus forcing countries to face more complex and difficult foreign exchange assets and liquidity management.

Asian countries have more stable external liquidity than other emerging market regions.

Therefore, Asian countries' assets, including foreign exchange, stock and CDS, have relatively low systematic risk. In the long run, Asia can be seen as a haven for assets.

Economists also warned that, as the global monetary authorities will maintain a more protracted monetary policy, capital will inevitably continue to flow into Asian countries.

Hang Seng Huang Weihong: foreign exchange and bond market has a negative impact on economic entities.

According to the data released by the European Central Bank in June 2nd, banks in the euro area are now storing a record 316 billion 400 million euros in the very safe overnight deposit tools of the European Central Bank, which does not prohibit people from remembering the days after the collapse of the Lehman brothers in 2008.

On the face of it, the euro is in a precarious situation and the EU has not acted rashly.

In response, Huang Weihong, head of Finance Department of Hang Seng Bank (China), told an interview with financial weekly newspaper that "the EU is more worried about the stability of euro zone government bonds than the euro exchange rate."

This is reflected in May 19th when Bafin, a German financial regulator, banned naked CDS trading in eurozone government bonds.

The reason is that the naked CDS paction has pushed up the yield of eurozone government bonds to an unsustainable high position, and the heavy interest burden that will then result in the efforts made by Greece, Portugal and Spain to reduce their country's fiscal deficit. "

Not long ago, the European central bank bought back the government debt, and the European Union is revising the so-called treaty. In the face of various noncommittal measures, Huang Weihong said that the ECB's government debt repurchase program should be able to effectively stabilize the bond market, especially in the two countries, Greece and Portugal.

For example, the yield of Greek 2 - year bonds declined from about 18.2% in May 7th to about 6.6% in May 18th, while the yield of 2 - year bonds in Portugal also dropped from about 6% in May 7th to about 2.4% in May 18th, indicating that the market panic has cooled significantly.

"Eurozone officials are not against the euro's weakness, but the rate of decline is alarming.

Because the sharp fluctuations in the currency will complicate the contracts with foreign suppliers, and will also have a negative impact on the investment plans of the production enterprises in the euro area.

Although the euro / dollar exchange rate is generally recommended at about 1.20, it seems that if it falls too far, it will be impossible to foresee when it will stop falling unless the United States intervened with the eurozone to weaken the US dollar in order to protect its own export sector.

Huang Weihong said.

Turning to the impact of the foreign exchange market on the real economy, Huang Weihong said that the foreign exchange market is ahead of the real economy. At the end of 2009, when investors began to think about Greece's financial problems, Greece could borrow 2% of the market's yield for 2 years.

But in early May, when investors panic, the yield on Greek government bonds for 2 years has surged to 18%.

This has basically bankrupted Greece.

All these changes suggest that financial markets, including foreign exchange and bond markets, can have considerable negative impact on economic entities.