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Sarkozy regret over Greece as Europe eyes China

By Saga McFarland, CNN
updated 6:35 AM EDT, Fri October 28, 2011
French President Nicolas Sarkozy said he had no problem with China providing capital to bolster the euro.
French President Nicolas Sarkozy said he had no problem with China providing capital to bolster the euro.
  • "Let's be clear; it was a mistake," Sarkozy, on the Euro for Greece
  • Europe hopes to attract private capital to supplement the €440 billion rescue fund
  • China welcomed the deal, but has made no mentions of contributing capital
  • The EU's bailout fund chief will meet with officials in Beijing and Tokyo Friday

(CNN) -- As the dust settled after the latest agreement was struck to solve the Eurozone debt crisis, French President Nicolas Sarkozy admitted it had been a "mistake" to admit the stricken Greeks into the monetary union.

"Let's be clear; it was a mistake," Sarkozy told French television.

"Greece came into the Euro with numbers that were false and its economy was not prepared to assume an integration into the Eurozone. It was a decision that was taken in, I believe, 2001, for which we now are paying the consequence."

Wednesday's agreement, reached in Brussels, will slash Greek debt, recapitalize European banks and more than double the European Union bailout fund's resources to handle future sovereign defaults.

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"It's great news that we've got an agreement," said Deutsche Bank economist Gilles Moec. "When Europe puts its heads together, they do actually begin to cooperate."

However speculation is rife about China's role in the success of the plan, with suggestions they will provide capital to bolster the euro -- a scenario Sarkozy has no qualms about.

"If the Chinese, who have 60% of global reserves, decide to invest in the euro instead of the dollar, why refuse?" he asked.

China has welcomed the EU Summit consensus, whose main elements include a 50% reduction in the value of Greek government bonds, steps recapitalize European banks and plans to attract capital for the already overburdened European Financial Stability Facility rescue fund, in order to reduce Greek debt from the current astronomical 160% of its current economy to 120% of total economic output over the next 10 years.

China indicated that it may be in its best interest to contribute to a solution, although made no mention of specific plans to do so.

"We believe that, as the largest economy in the world, the steady, sound, and healthy growth of the EU economy and the Eurozone is vital to the world economy's recovery," Foreign Ministry spokeswoman Jiang Yu said at a regular press briefing on Thursday. "We are also ready to work with the EU to overcome the difficulty."

But Chinese support would depend on Europe's ability to guarantee the safety of any investment, Li Daokui, a member of China's Central Bank Monetary Policy Committee, told the Financial Times. "It is in China's long-term and intrinsic interest to help Europe because they are our biggest trading partner but the chief concern of the Chinese government is how to explain this decision to our own people," Li said.

Li added that China could use fiscal support as leverage to deter Europe from criticizing China's currency policy, which is often criticized for being undervalued and unfairly benefiting Chinese exports.

Europe hopes to attract capital from sovereign wealth funds, particularly from developing nations like China and Russia, to supplement the €440 billion rescue fund, but analysts note that the structure of these investments remains unknown.

In a phone conversation with Sarkozy on Thursday, Chinese President Hu Jintao made no mention of specific plans to invest in the scheme, but lauded Europe's progress in solving the debt crisis.

The leaders discussed plans for the upcoming G20 Summit, with Hu saying the annual meeting had become a platform for cleaning up the global economy and that he hopes it can continue to adhere to the spirit of cooperation and common success, China's state-run Xinhua news agency reported.

"It is not in China's interest to fund this scheme," Carl Weinberg, chief economist at High Frequency Economics told CNN Money. "It is better advised to sit this out and buy assets at liquidation than to invest in a sinking ship."

Meanwhile the EU's bailout fund chief Klaus Regling will meet with officials in Beijing and Tokyo Friday, though no reason has been given for his visit.

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