China may step in as a lender of last resort if negotiations about Greece’s debt repayments falter, Newton’s Nick Clay has predicted.
The manager has said one of the unexpected consequences of Greece exiting the euro could be that it is propped up by China in return for ownership of assets such as ports.
Greek finance minister Yanis Varoufakis remained locked in talks with the eurozone’s other finance ministers last week as he tried to secure acceptance of his 30-page proposal of how the Mediterranean country wanted to proceed.
The country is eager to avoid a disastrous debt default but is calling for a reduction of its repayments. Mr Varoufakis is seeking new terms, including lower budget surplus targets, which would allow the country to relax the levels of austerity it has had to endure.
Mr Varoufakis wants an extension to Greece’s current loan package, which ends this week.
“Our citizens have rejected the role of the ‘troika’ in Greece,” Mr Varoufakis’s document stated.
“Our government will however maintain dialogue and continue to cooperate fully with the European Commission, the European Central Bank and the International Monetary Fund as a member country of the European Union, the euro area and the fund.
“Our future cooperation should be based on mutual trust and respect, and channelled primarily through the European Commission while we work with each of our partner institutions in their specific areas of expertise and competence.”
Eurozone finance ministers immediately rejected Mr Varoufakis’s plan last week, according to reports.
But if there is an impasse and no solution is agreed upon, Mr Clay said China could step in as a financier of last resort to Greece, a route other struggling countries within the eurozone could possibly follow.
“In one such scenario, China could provide financial assistance in return for ownership in vital infrastructure, such as ports,” Mr Clay said.
“If that happens, Portugal and Spain might consider going [down] the same route, as the fear of being able to fund themselves dissipates.”
Mr Clay said Chinese foreign direct investment into Europe hit $18bn (£11.6bn) last year, almost double 2013’s level, according to the Rhodium Group, a US-based company that has analysed China’s development.
In the past four years, the average spend in the region by Chinese investors has been $12bn a year, Mr Clay said, suggesting a slowdown in Chinese growth had not dented the country’s appetite for international exposure.
As for the ongoing negotiations, Mr Clay thought a way would be found for Greece to default without leaving the euro and this would take place in the face of German opposition.
“Germany was reluctant to take on quantitative easing, but it still happened anyway,” he said.
The manager added that Germany, among others, would understand the potential “domino effect” whereby if Greece was allowed to renegotiate the terms of its bailout, then others would demand the same treatment.