Europe would find it hard to convince emerging markets such as Brazil or China to invest in a European bailout fund, a former European Commissioner warned on Tuesday.
Lord Patten of Barnes, a former European Commissioner for External Relations from 2000 until 2004 and the last governor of Hong Kong before Britain handed the island back to China in 1997, told CNBC that the issue facing the euro zone is not a lack of resources but its apparent lack of willingness to use the resources available to it.
“I think it’s a pretty hard sell for Europeans to go to China or Brazil or Singapore or wherever and say, ‘Hey guys, we’ve got this fantastic idea with you putting some of your money into a bailout fund that we’re not prepared to put our money into.’
“The issue in Europe isn’t a lack of resources, it’s whether we’re prepared to make those resources available, and the purpose for which we’re prepared to make those resources available, and the terms on which we’re making them available,” he said.
“But if I was… a Chinese leader, which I am manifestly not, I think I’ll think very hard about whether or not to put any of my reserves into the EFSF (European Financial Stability Facility). I’ll be prepared to buy European assets, particularly if I got them cheap, but I’m not sure about the bailout fund.”
Lord Patten welcomed the appointment of Italian Prime Minister designate Mario Monti, calling him “one of the best people” he had ever worked with.
“He’s not the Archangel Gabriel, but he’s a considerable economist. He was a formidable operator when he was at the Commission for Competition Policy in the European Union. Stood up to some of the big multi-nationals and did it very well,” he said.
But he suggested the scale of the challenge facing Monti was considerable, arguing he not only had to deal with Italy’s budget deficit but also the fact that the Italian economy had “pretty much been flat-lining” for the last 10 to 15 years.
Meanwhile, Lord Patten told CNBC that he thinks Angela Merkel is walking a fine line politically in Germany while also acting as de facto leader of the euro zone, adding that many had been too quick to criticize the German chancellor for her apparent lack of action.
“I think people have been too critical of Angela Merkel. She has to be careful about political opinion at home; she has to be careful about the constitutional limits on what she can do,” he said.
“And there are plenty of Germans who say: ‘Hey, what’s the evidence from the past that simply bigger cash transfers to Southern countries had actually worked? Haven’t they very often made no difference at all? Haven’t they even sometimes led to greater corruption?’ So there are plenty of people in Germany with quite good arguments against doing a great deal more.”
However, he said he believed the European Central Bank (ECB) and Germany would have to do more in order to save the euro zone, while at the same time warning that the process could take months or even years.
“There’s plainly a huge amount of pressure from Germany, the Netherlands, and perhaps one or two other countries as well, against allowing the ECB to become – what would happen in a real fiscal union – lender of the last resort.
“There’s a huge opposition to Eurobonds and more bailouts from… in effect, the ECB. But it’s difficult to envisage a closer political and fiscal union without more transfer from the richer to the weaker and poorer,” he added.
“So that’s going to be the big argument, I guess, in German politics in the next months and years. I think we’re going to have a pretty rocky period, politically,” he said.