Emerging economies are concerned about the impact of the euro zone’s debt crisis on their economies but will stand back and wait for Europeans to come up with solutions before they offer help.
The BRICS, the powerful emerging market economies of Brazil, Russia, India, China and South Africa, have said they are open to investing in the euro zone but through the International Monetary Fund.
“We would support the IMF in playing an appropriate role to backstop preventive steps taken within the euro zone,” Indian Prime Minister Manmohan Singh said after the G20 summit on Friday, Reuters reports.
The euro zone is a huge market for export-led countries like China and Brazil, and a financial meltdown in Europe could cause a sharp slowdown in global economic growth.
“If the financial and banking systems of Europe are not in good shape, then trade flows, capital flows get disrupted and if that happens, that will be some cost to the economy,” Singh said.
So the new economic powers have a strong interest in preventing contagion spreading from Greece to bigger vulnerable European economies such as Italy and Spain.
However the emerging economies, some of which once endured European colonial rule or domination, are wary of putting hard-earned capital at risk and some have political demands in return for supporting Europe.
China wants the European Union to grant it market economy status, a long-standing demand that would give Beijing better protection against anti-dumping trade actions, in return for any help to the euro zone.
There is also intense debate among Chinese academics, policy advisers and bloggers on how safe an investment Europe is.
Li Daokui, an adviser to the Chinese central bank, said on Friday that Beijing should await workable plans from Europe before putting money into any bailout investment fund.
China should insist on “certain controls” over how the money would be used, he told a forum in Beijing, adding that it would be best to act jointly with other BRICS countries.
Beijing also wants the European Union to lift an arms embargo imposed in 1989 after the violent suppression of pro-democracy protests in Tienanmen Square.
Brazil says financial help for Europe should be linked to more power for emerging nations in the IMF, reflected in their quota shares in the Fund.
“We discussed quotas and the fact that IMF governance has to reflect changes in the correlation of forces. This has to be expressed with some countries having the right to more quotas, and others to less,” Brazilian President Dilma Rousseff said.
But for some countries, the key issue is that they are not yet convinced that Europe has a convincing strategy for overcoming the crisis.
“Yes, we will wait till the euro zone shows that it has a credible plan which can work,” said a senior South African official who sat in on most meetings at the two-day summit.
Euro zone leaders adopted a three-pronged strategy at a Brussels summit last week to reduce Greece’s debt mountain, scale up their EFSF rescue fund and create investment vehicles to attract foreigners to support European bond markets.
But smooth implementation of that package was cast into doubt within days when beleaguered Greek Prime Minister George Papandreou angered EU peers and spooked financial markets by calling for a referendum on a new bailout plan, only to drop the idea later under fierce European pressure.
The Cannes communique flagged the G20’s intention to bolster the resources of the International Monetary Fund but set no figures. G20 sources told Reuters that it could raise as much as $350 billion.