Has the EU escaped a Chinese rescue?

It looks like Greece will be alright. After years of denial and budget blow-outs that left the country's public finance in a dire mess, it was announced after the summit of EU leaders on 11 February that - in one way or another - the eurozone will support Greece in getting its economy back on track. There is some disappointment surrounding the failure to come up with a solid rescue plan for Greece after German resistance to a swift bail-out. But, all in all, the eurozone is sticking by its most troubled member.

Europeans asking each other for help and getting it (albeit in undefined terms) looks like good news for the European Union. But there is one worrying element to this Greek tragedy that people seem to have forgotten: Greece went to China first.

In late January, Greece, through the good services of Goldman Sachs, offered China €25 billion of its public bonds.

We know we are living through a power shift from West to East. We also know that Europe has difficulty coping with pressing global issues. But this opening by Greece to China highlights a few more disturbing trends for Europe.

The first is obvious: Greece is in a very fragile position, and this proposed deal showed how desperate the nation's politicians are to get out of it. The fact that the whole affair became public before the actual conclusion of any deal not only weakened Greece's bargaining hand, but also showed just how little control the Greeks have on sensitive financial information.

Secondly, Greece had decided to make its bid for a Chinese rescue alone. Not only did this weaken its own hand, but it also decreased Europe's financial leverage vis-à-vis China. It seems the deal was proposed without co-ordination at the EU level, and perhaps as an alternative to a Greek appeal to the eurozone. The fact that the attempt was led by Goldman Sachs, and not by a European bank, supports this idea.

But there was a more alarming side to this story. Yes, Greece will (probably) not have to rely on the Chinese now that the eurozone has pledged its (undefined) support. And if the eurozone fails to pull through, Greece could always call the International Monetary Fund. But if China accepted the Greek offer, what leverage would China gain over Europe? China's investment funds cannot be seen to be so willing to pour money into failing public budgets unless there is a very good reason to do so. True, China has lent huge amounts of money to Russia, Brazil and western African nations. But these were trade-offs for equally huge natural resource deals. Unless we count the craftiness of Ulysses' scions as a natural resource, Greece does not have much to barter with.

Save for one contribution the Greeks could offer the Chinese: the opportunity to leverage the foreign policy of the European Union.

Greece's positive attitude to China cannot be worth €25bn on its own. Yet when each of the 27 member states has veto power over many of the EU's foreign policy decisions, forging a tight Greek connection is certainly worth something. China can already count on Cyprus as its best friend in Europe, thanks to support at the UN. And what about Spain, the other likely candidate within the eurozone for a budget emergency, and which has just loudly proclaimed it wanted the EU arms embargo against China lifted in the next few months?

All this leads to one conclusion: the EU should have its own public bond issue. It could then seek investment from China and other surplus countries. Europe's market for bail-out capital, particularly at the periphery of its borders, and its need for large new investments in infrastructures (transport, energy distribution and alternative energy), suggest that capital investment from China would be a useful quid pro quo for China's huge trade surplus with Europe.

Europe would have little reason to worry: since the money would be spent quickly, it would not lead to a rise of the euro any more than China's purchase of US Treasury bonds caused a rise in the dollar. These public bonds - launched at the level of the European Union, not by a single member state - would imply budgetary oversight and measured economic decisions at the European level, not run-away speculation of the sub-prime variety or the kind of vicious fiscal circle Greece has put itself in.

Common and co-ordinated progress to create a European public bond market, after the remarkable performance of the European Central Bank in September-October 2008, would signal a strong Europe that has innovative financial instruments beyond the common currency. At the height of the financial crisis in September 2008, Jean-Claude Trichet, the president of the European Central Bank (ECB), exclaimed that there were limits to what the ECB could achieve for lack of conventional budget and debt instruments. A Europe where the weaker members of the eurozone run first to powerful outside creditors for help only demonstrates the ECB's weakness.

In this new global era, foreign policy and financial leverage (and the lack of both) are closely linked. It is of urgent necessity that Europe learns the lessons from the Greek misstep and acquires a common stance towards China on the financial front. That stand need not be adverse: it just needs to be common. We would not want our common foreign policy and security, somewhat empowered by the post-Lisbon institutions, to fall hostage to misguided and desperate financial decisions by one or two weak member states.

This piece was first published by European Voice.