Through its central bank's annual financial stability report, China warned the world again on Tuesday that the debt crisis in Europe was threatening to spread because it had not been properly dealt with.
The warning came as the European Central Bank (ECB) once again dismissed calls for private bondholders to share in losses incurred by Greece as eurozone finance ministers prepared for their Tuesday meeting to consider the matter. Meanwhile, China was taking further steps to cool its own superheated inflation rate, raising required reserve ratios (RRR) at its banks yet again.
According to Reuters, the Chinese report sternly warned that the measures so far undertaken by the euro zone had failed to address the actual cause of the debt crisis, although they had temporarily stabilized things. "The sovereign debt crisis could continue to weigh on Europe's economic recovery," it said. "There is a possibility that the sovereign debt crisis will spread and deteriorate."
China, however, faces its own issue: that of runaway inflation. Its May inflation rate was the highest in 34 months at 5.5%, prompting Beijing to raise the RRR for the ninth time since October. When it takes effect on June 20 it will stand at a record high of 21.5%. Analysts had been expecting the central bank to raise interest rates; this latest RRR move may now forestall that, according to a Beijing analyst. Du Zhengzheng, an analyst at Bohai Securities in Beijing, said in the report, "I think the RRR rise this time aims mainly at curbing inflation … The move is likely to delay the next interest rate rise to the end of this month or the beginning of next month."
