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BRICS countries preparing aid package in support of the European Union

Wednesday, September 14th 2011 - 06:43 UTC
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Brazilian minister Mantega confirmed the ‘rescue’ meeting next week in Washington Brazilian minister Mantega confirmed the ‘rescue’ meeting next week in Washington

Brazil, Russia, India, China and South Africa, which make up the so-called BRICS group, will meet in Washington next week to discuss how to help the European Union avert a full-blown financial crisis as Greece veers toward default on its debt, Brazilian Finance Minister Guido Mantega said Tuesday.

The BRICS bailing out the Old World is a scenario that few would have imagined just a few years ago before the financial crisis and recession, when Europe and the United States were on top. But those economies are stagnant now, as countries such as Greece, Portugal, Ireland and Italy struggle with huge debts, government austerity drives and high unemployment.

“The BRICS nations will meet next week in Washington and we will discuss how to help the European Union get out of this situation,” he said. BRICS nations would likely increase their holdings of Euro-denominated bonds as a way to provide support for the region’s spreading financial problems.

But as new troubles in Europe roil the markets daily, the question is how much the BRICS group can help the embattled 17-member monetary union.

On Tuesday, the Italian Treasury was forced to pay a record-high yield to sell five-year bonds, reflecting growing concerns about the country’s debt burden. Meanwhile, German Chancellor Angela Merkel pleaded for the Euro zone’s survival, attempting to defuse growing expectations that Greece is on the brink of defaulting on its debt obligations as the country’s cash reserves rapidly deplete and its bond yields skyrocket to unsustainable levels.

Buoyed by strong exports, high growth rates and generally sound fiscal positions, countries in the BRICS group are increasingly taking the role of creditor nations, ready to provide a financial backstop to the so-called PIIGS – Portugal, Ireland, Italy, Greece and Spain.

Those countries are suffering through a debt hangover after years of credit-fuelled expansion came to an abrupt halt during the global financial crisis, while recent moves to slash government spending weigh on a fragile rebound.

Mantega’s comments came after Valor Economico, Brazil’s top business newspaper, said any European bond purchases would send a powerful political message to wealthy, though struggling, economies.

“The political interest is clear – to appear publicly as contributors to market stability and thereby demonstrate to what extent the balance of the global economy is changing” the paper said.

In other words, bond purchases of euro zone countries would highlight the BRICS’ growing economic power and stature. Those countries were once disparagingly knows as members of the Third World. Today, they are potential saviours of the First World.

Among the BRICS, it is China that pioneered the purchase of sovereign junk debt. Since the euro zone crisis started, it has bought Portuguese and Greek bonds, though the value of its purchases is not known.

This week, the Italian government revealed that it had met with Chinese officials to encourage China’s purchase of Italian bonds and investments in strategic companies.

In an interview at the Frankfurt Auto Show, Sergio Marchionne, the Italian-Canadian chief executive officer of both Fiat and Chrysler, said: “If the Chinese are willing to invest, God bless them. But the fact that we had to go there [begging for money] is not a good sign”.

Categories: Economy, Politics, International.

Top Comments

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  • Fido Dido

    This is a copy from Reuters who spreaded this Rumor. They aren't going to bailout the old world (They aren't that stupid). What they are going to do is buy hard assets. Mr Lula da silva already gave a hint what he's planning with business in Portugal.

    Sep 14th, 2011 - 05:50 pm 0
  • GeoffWard2

    The BRICS cloak of respectability is just that - an attempt to show generic help for what is essentially a Chinese buying-up of nations' debts to stabilise the world economy.

    China has no vested interest in seeing the economic world order collapse, and has every vested interest in making the world financially beholden and indebted to itself.

    It's about time we stopped using the term BRICS.
    It draws an erroneous comparison of Developed c.f. Developing in terms of money flowing through the various Dev & Devg countries.

    Also the capacity to 'do things' is frequently much greater in a BRICS country than in many developed countries - especially the tiny, vulnerable ones where money is tied up to a greater extent in a long-aged history of equity, bricks & mortar, etc.

    China is so massively more economically powerful than the other BRICS *and* virtually all developed nations, that I do not agree that it should win concessions because it is, ostensibly, 'developing'.

    We are all developing.
    We do not just stop when somebody says “You are now 'developed'.”

    Sep 14th, 2011 - 09:08 pm 0
  • Fido Dido

    ~Chinese buying-up of nations' debts to stabilise the world economy. ~

    Not going to happen if you did your proper homework and listened to Mr Hu jin tao, who made it clear, They are going to invest in Europe (buying up assets as I typed before what Brazil also wants to do) but they won't buy up the debt, Europe should bite that bullet (let the zombie banks fail)..same for the US.

    ~China is so massively more economically powerful than the other BRICS~
    That's just another myth you keep reading on the Economist, a british journal for junkies who wants to believe the exaggeration of China. Each nation has it's own strength, but that's to complicated to understand for many old fools.

    ~It's about time we stopped using the term BRICS. ~
    I agree with you, but won't happen. Why? Still to many idiots who aren't capable to understand why they should stop using the term BRICS.
    We should also stop using the sentence the BRICS vs the West. West stands for more advanced? Because they aren't that advanced at all (except in being in debt and acting big with borrowed money they cannot pay back) as they claim in some areas of the economy, compare to so called developing nations ( that are always changing, so I agree with you on that with, We do not just stop when somebody says, you are now developed). Maybe West for cultures? India, China aren't western cultures, but Brazil, Russia and South Africa have/are western nations, though not located in Europe where the term western nations was created because they “were” advanced, today? Not so much as they claim. Its time that people in Europe and the United States seriously look to their own education system and stop hyping up how great it is, because it isn't. That's another problem why many people in those areas do not understand what I just typed.

    Here, 3 experts from the UK on RT, explaining this subject in this blog better.

    Sep 14th, 2011 - 10:18 pm 0
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