When the organisers of the World Economic Forum in Davos planned the agenda for this year’s event, I doubt they even noticed that Li Keqiang, the vice-premier of China, was scheduled to sit on the same stage in a congress hall 10 minutes after George Papandreou, prime minister of Greece.
The irony, however, was delicious. For the first part of the afternoon on Thursday, Mr Papandreou sat uncomfortably amid a eurozone debate, looking like a man on the political back foot, as he tried to explain the current crisis in the Greek government bond markets.
As he left the stage, a hyper-confident, disciplined Chinese delegation swept in – and the vice-premier delivered a forceful (albeit predictable) speech about China’s self-styled “win win” economic policy, which has helped it to rebound and spread its wings across the world.
Whether Mr Li and Mr Papandreou managed to say “hello” as they passed through the stage door was not clear. However, Mr Papandreou, for his part, fiercely denied that he might have any need to court the Chinese.
On Thursday he was at pains to say Athens had never tried to sell its bonds in Beijing and that “Chinese investors did not have any contact with us. We have denied it and the Chinese have denied it.” He tried to calm the markets by talking at length about his commitment to structural reform, while hinting that players “with ulterior motives and agendas” were stirring up rumours in the government bond world.
It is undoubtedly a popular line to take inside Greece. But as Mr Papandreou admitted, the real problem dogging Athens is that its “biggest deficit is not the financial deficit but the credibility deficit”. To put it bluntly, few investors believe what Mr Papandreou has to say, either about the economy or the Chinese.
It has been evident for months that Greece is in a deep fiscal hole, which is prompting it to explore creative ways to sell bonds. No wonder the word inside some big western investment banks is that public finance is set to be a focus for innovation in coming years, in much the same way, say, that mortgage finance or leveraged buyouts used to spark so much creativity.
Almost every business leader or banker in Davos this week has a story to tell about how the Chinese are spreading their tentacles into unlikely places. One powerful financier, for example, says he has spotted the Chinese looking for distressed assets in Ukraine; another says Chinese money is being fed into the British mortgage market; a third that some of the best restaurants in Nigeria now serve Chinese food; while the Chinese now appear to be stalking almost every mine on the planet. In this context the idea of Beijing quietly buying Greek bonds – perhaps via a private placement – does not look outlandish.
Ruling out such a move so publicly leaves Mr Papandreou with a challenge. Just before he arrived in the Swiss mountain resort, CNBC polled Davos delegates and found more than 50 per cent saw government debt as the next big global risk, above other risks such as protectionism.
There is, in other words, a deep fear stalking the heart of all government bond markets. At best, that makes for some volatile price swings; at worst, it leaves Europe looking at a potential crisis. Either way, Mr Papandreou needs all the marketing skills he can muster; with or without the services of those innovative and clever investment bankers.
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