China has scored the first point in the great game involving post-crisis Europe. China is likely to contribute to the euro zone’s bail out fund, the European Finance Stability Facility (EFSF). The magnitude and design of China’s contribution will depend on details of the Angela Merkel -- Nicolas Sarkozy 50% plan (so called because it “haircuts” Greece’s debt by that amount) that was the result of the euro zone summit held last week.
French President Sarkozy pushed the plan with Chinese President Hu Jintao hours before the summit ended to get China to commit. In the days since that phone call, Sarkozy has come in for much criticism in France. Six months before France holds a presidential election, the opposition is going to town on Sarkozy’s admission of ”weak euro hands”, with some going to the extent of calling it “dirty money”. But with domestic politics not allowing Sarkozy and German Chancellor Merkel to pony up the full amount of €1.3 trillion, Europe is left with little choice but to expand the geographical footprint of its begging bowl.
Enter China, which has shrewdly capitalized on this desperation. By engaging in a discussion but, at the same time, by watching and waiting and hemming and hawing on the details, China has gained the strategic upper hand with the leaders of the euro zone. By playing coy as the reluctant banker, China is ensuring that domestic and international criticism of its role remains muted. No matter what happens, and how much China ends up eventually contributing, it will have blunted future European ability to conduct strategic dialogue from a higher perch. On currency and on human rights and other issues that will arise over time, Europe’s ability to influence China is likely to be damaged for quite some time to come.
US President Barack Obama waves as he arrives for the G-20 summit in Cannes, France on Thursday. AP
In contrast, India has followed its usual, timid, multilateral negotiation style. One doubts if French foreign minister Alain Juppe even has a hot line to the mostly somnolent Indian foreign minister. The planning commission, as is its wont, has murmured something about supporting the EFSF through the International Monetary Fund (IMF) even though the United States, which is the largest shareholder of the IMF, has kept no one guessing about its displeasure about IMF participation in a euro zone bailout. The declaration, made after the India-Brazil-South Africa (IBSA) meeting held in Pretoria in October, was long on rhetoric and short on action. Even Brazilian foreign minister Guido Mantega has taken the ball on the front foot by saying “we will see what we can do [to help Europe]”. When it comes to engaging the world, more often than not, India chooses to hide within the petticoat folds of some multilateral organization.
It is time for India to enter the fray as an individual participant. India will be presented an excellent opportunity in Cannes this week when the G-20 meets. If India believes that it belongs in the United Nations Security Council’s permanent group, now is the time to step up to the plate. Needless to say, the details of the euro zone plan are important as is some assurance that our funds will be “guaranteed”. India should begin the discussion with a willingness to commit between $10-25 billion. A portion of this can come directly from India’s foreign exchange reserves of over $300 billion and the remainder as rupee funds to limit the impact of foreign exchange fluctuations.
For India, the best play in this round of the game will be to offer and negotiate but finally not be called upon to participate. This will enhance our credibility and our strategic position but protect our funds. There is every chance that this could happen because many Europeans are deeply opposed to the idea of emerging markets funding their bailout. Many Europeans, it appears, would rather suffer the consequences than seek funds from countries that they were bailing out not too long ago. Of course there is also a chance that once you stand up to be counted, the funds will be called and we will have to be prepared for that.
India’s gentle gazing from the sidelines makes it a non-participant in this great game. As the Americans say, “you have to be in it to win it”. It is time.
Narayan Ramachandran is a fellow at the Takshashila Institution and a columnist for Mint.
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