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In the recent European sovereign-debt crisis, the euro fell to its lowest level of the past four years.
With the financial support from the EU and IMF, Greece survived the crisis for the moment. But the all-clear hasn't been sounded yet, and this crisis is not limited to one country.
Although the EU can render economic rescues, the fundamental solution to the governance mechanism of European sovereign countries remains a problem, which is also the reason for continued market doubts.
Sovereign-debt crises mostly derive from a rigid exchange rate system, which usually follows the US dollar and economic development model with over-reliance on foreign capital. Accompanied with major asset bubbles, seriously overvalued currency, selling pressure of hedge funds and capital outflow, the country would end up in extreme national currency devaluation and see asset bubbles collapse.
In the Asian financial crisis in 1997, the Indonesia rupiah devalued by 77 percent, while currency depreciation in Thailand, South Korea, Malaysia, and the Philippines also reached more than 30 percent. However, due to the eurozone, Greece cannot revitalize export and economic growth through currency devaluation.
As Greece cannot boost exports through devaluation, pinching and scraping has become the only choice. From an underlying perspective, Greece faces the crisis of competitiveness. The average annual wage growth is 4.1 percent over the past five years, while annual productivity growth is only 1.1 percent. In contrast, the annual wage growth of France and Germany far lags behind productivity growth.
To some extent, the Greek debt crisis is also a crisis of confidence. In order to join in the eurozone, Greece has been concealing its true level of debt and deficits.
In the spring of 2009, it reported a budget deficit to the European Commission, which was only 5.1 percent. But later in the autumn of 2009, the number was adjusted to 12.7 percent.
Given the size and importance of the European economy, its debt crisis has undoubtedly cast shadows on the world economy, which is in a difficult period of recovery.
For China, Europe is not only an important export target but also an indispensable source of investment.
Moreover, as China is now making more efforts to suppress real estate bubbles, it needs to guard against negative influences caused by multiple factors.
More importantly, the Chinese government holds a lot of euro foreign exchange reserves. Continued depreciation of the euro would cause significant loss of foreign reserves. But from a long-term strategic perspective, China has its reasons not to sell the euro despite the real situation.
First of all, keeping euro reserves is consistent with the long-term strategy of foreign exchange reserve diversification. China's foreign exchange reserves are now up to $2.4 trillion, of which the largest part is dollar-denominated assets.
Although the recent trend of the US dollar is not weak, this is mainly due to investors hedging their bets during the period of unrest. In the long run, a fall in the US dollar is inevitable.
But to change the irrational international monetary system, China also aimed at promoting the internationalization of the yuan. In line with this strategic goal, China should gradually reduce its dollar assets and turn to more strategic resources such as gold, major commodities and non-dollar currencies, which are necessary to maintain China's economic security.
Given the huge size of China's foreign exchange reserves, once China starts selling the euro, it inevitably sends out the impression of kicking somebody when he's down. This would undoubtedly affect overall Sino-EU relations.
At this moment, helping pull Europe through the difficulties is consistent with China's strategic interests.
After all, once major economic problems arise in Europe, any country will be affected, as the world today is a connected and symbiotic body.
China shouldn't seize the chance to go bottom fishing for the euro, but instead appropriately increase its proportion of euro assets to meet the nation's long-term strategic interests.
China could take advantage of current situation to invest in strategic resources of European financial and mineral industries in the way of equity participation.
This is the time when it will encounter the least political resistance, and can reap dividends for the future.
（作者系中欧陆家嘴国际金融研究院副院长,为栖息谷特约专栏专家）本文刊于2010-06-09 《环球时报》
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