G20 could face shift in economic power

China holds a whopping $ 3.2 trillion in foreign reserves:

US: The giant emerging economies of Asia and Latin America could stake a historic claim to global economic power if they arrive at the G20 summit in Cannes with offers of aid for hobbled Europe.

Last week’s eurozone rescue deal struck depends heavily on the response of especially China but also Russia, Brazil, India and South Africa the so-called “BRICS” for contributions to a EU rescue mechanism.

French President Nicolas Sarkozy called Chinese President Hu Jintao just as the deal was set Thursday, and a day later the head of the Emergency Financial Stability Facility, Klaus Regling, was in Beijing for talks. “If the Chinese, who have 60 percent of global reserves, decide to invest in the euro instead of the dollar, why refuse?” Sarkozy said.

Regling was in China to discuss raising hundreds of billions of euros for the EFSF, though he downplayed what he insisted was a regular visit.

Asian countries already hold 40 percent of EFSF debt, in testament to the BRICS’ huge reserve stockpiles.

China holds a whopping $3.2 trillion in foreign reserves. The other four, together, have about $1.1 trillion.

How the deal would take shape remains unclear. European leaders want to boost the financing strength of the EFSF to 1.0 trillion euros ($1.4 trillion), from the current 250 billion euros.

Media reports said China was being asked for 100 billion euros.

That could mean raising more money directly for the EFSF, which could then be leveraged, or setting up a parallel special vehicle for money from the BRICS, Japan and others, for instance Middle East oil states.

The money would then be used to support the eurozone’s weakest economies and stabilize markets for their debt, protecting the potential next victims of debt contagion like Spain and Italy.

Early proposals suggested the International Monetary Fund would manage and direct any additional funds from the BRICS, with the global crisis lender acknowledging its own funds for such a huge task were limited.

Instead, there is talk the IMF would oversee the operation through the EFSF, as potential lenders fear they could end up like the banks which were last week compelled to write off half the face value of their Greek bonds.

Details could be worked out at the Group of 20 meeting November 3 and 4, where implementation of the new eurozone plan will likely be the main topic.

But the simple fact of the Europeans asking for help from China, a country they once carved up into colonial outposts, marks an epochal shift of power.

If other BRICS come into the deal and Russia, Brazil and South Africa have signaled their interest it would only make the shift more momentous.

The five have already made a push for more say in the IMF, long dominated by the United States, Europe and Japan.

That has been answered by a measured plan to slowly increase their financial contributions and voting stakes. But with the US, European and Japanese economies all in difficulty, the BRICS’ time could come sooner than thought.

AFP