STEVE INSKEEP, HOST:
It's MORNING EDITION from NPR News. I'm Steve Inskeep.
RENEE MONTAGNE, HOST:
And I'm Renee Montagne. To understand the European debt crisis, it helps to keep track of both the short-term and the long-term. In the short-term, Europeans have agreed on a bailout deal that among other things would cut the debts of Greece. It's being held up by the Greek prime minister's plan to hold a referendum on austerity measures. Europeans have told Greece it's got to decide soon if it wants to be part of the eurozone or not.
INSKEEP: So here's a longer term issue. Last week, European leaders asked cash-rich China to help back the European bailout fund. And some economists are seeing that request as a shift in the global economic order. NPR's Frank Langfitt reports from Shanghai.
FRANK LANGFITT, BYLINE: When French President Nickolas Sarkozy called Chinese President Hu Jintao last week, asking China to pour more money into the EU, it got the attention of a lot of people - among them, Arvind Subramanian, a senior fellow at the Petersen Institute of International Economics in Washington. Subramanian says Europe's plea for help illustrates a big change in global relations.
ARVIND SUBRAMANIAN: It did not turn to the United States because â you know, it's a sign of U.S. economic weakness. There couldn't be any more dramatic illustration of the shift in world power as that request from the EU to China and not the U.S.
LANGFITT: EU officials turned to China because it has more foreign currency reserves than any other country - $3.2 trillion. Subramanian says if the Chinese put more money into the EU, they'll want favors in return.
SUBRAMANIAN: In principle, the list is pretty open-ended. China could say take us off the arms embargo list that you put us on after Tiananmen Square, you know, '89. You know, stop lecturing us about human rights.
LANGFITT: Chinese firms have often been accused of dumping products on foreign markets. Beijing could ask the EU to make it harder for its own companies to file trade complaints over the practice. Europe is desperate, but would leaders there weaken the position of their own firms?
GARY LIU: The EU, they will feel very difficult to make such a deal.
LANGFITT: Gary Liu runs the financial research center at the China-Europe International Business School campus in Shanghai. He says the Chinese are approaching the EU very cautiously. This week, Zhu Gaungyao, China's Vice Finance Minister, said it was, quote, too early to discuss more bond purchases. And with Greece's prime minister calling for a referendum on the rescue plan, its future is uncertain.
LIU: Politically in China it is very risky. Because if you use their money to buy the European debt and then some day the debt defaults, you get nothing. You will be obviously criticized.
LANGFITT: In other words, a debt default could anger the Chinese public. The dominant narrative of the past week has been the EU going hat-in-hand to a China awash in cash and in control. Patrick Chovenec, who teaches at Tsinghua University's School of Economics and Management in Beijing, offers a different narrative. He says China's currency reserves are so big, it has few other options than to invest in U.S. and European bonds. And propping up the EU is in China's self-interest. The EU buys more products from China than anyone else.
PATRICK CHOVENEC: In fact, China is much more like a shopkeeper that keeps on having to allow its customers to run up a tab, for fear that if it doesn't, then they'll stop selling and go out of business. So the creditor in this case is just as dependent as the debtor.
LANGFITT: Chovanec says the solution is to break that cycle of dependency. He thinks China should let its currency, the yuan, rise significantly. That would make European products cheaper and easier for China's growing middle class to buy. And, Chovanec says, instead of just lending its reserves back to Europe, China should put some them to better use.
CHOVENEC: And if China wants to do a real favor for Europe, it will use them to generate demand for European goods or make productive investments in Europe that will actually generate jobs, and earnings and growth in the things that Europe really needs to grow out of its debt problem.
LANGFITT: Of course, such a move would mark a major economic policy shift for China. And there are no signs of that happening anytime soon. Frank Langfitt, NPR News, Shanghai. Transcript provided by NPR, Copyright NPR.