The possibility of a Greek default is looming large. In addition to belt-tightening and measures to restore Greek balance sheets to a sound footing, various recipes have been mooted on how to re-package Greek debt, including 'haircuts' for private investors. As protestors swelled to 20,000 in Athens and Prime Minister George Papandreou offered to resign, the sovereign debt crisis shows every promise of turning into a Greek tragedy that could spread within and without the Eurozone, threatening the long term viability of the Euro.

During an interview today (17 June) in New York with Charlie Rose, Alan Greenspan, former Chairman of the Federal Reserve, said that a default by Greece is “almost certain” and could re-plunge the US economy into another recession.

In April this year, some lateral thinking was featured in a joint Paper 'A Modest Proposal for Overcoming the Euro Crisis' by Yanis Varoufakis of the Department of Economics, University of Athens and Stuart Holland, Department of Economics, University of Coimbra, Portugal. The main trust of their proposal is a 'Tranche Transfer' – transferring a share of national debt and borrowing to Eurobonds held and issued by the European Central Bank (ECB). This, according to the two authors, would obviate any fiscal transfers, taxpayer-funded buy-backs, or changing any existing Treaties.

The proposed new EU Bonds are designed for a 'European New Deal' which can re-energize the stalling Trans-European Networks (TEN) project in Transport, Energy and Telecommunications, including a pan-European high speed rail that links more and more Member States together. Apart from economic revival, a high speed rail system across the European continent would also help foster a low-carbon economy in Europe, to start with. There is a suggestion that investment from China should be solicited. Click here

Whether and how the financial mechanics for this new EU Bond based on a 'Tranche Transfer' should best be worked out remain to be further investigated, but in addition to the possibility of averting a dangerous default crisis for Greece and the Eurozone, if not for the rest of the world, the idea of linking this proposal to the development of a pan-European high-speed rail network tallies with an interesting report dated 13 March, 2010 by Zachary Shahan in Clean Technica, a green energy blog. Click here

According to the report, China is already about halfway through the construction of the largest high-speed rail (HSR) network in the world with the world’s fastest trains. For example, the operating speed of the much-anticipated Beijing-Shanghai high-speed railway is set at 300 km/h initially for better safety, but could reach 350 km/h in the future in the light of experience, said a senior railway official.

‘With its internal projects getting closer to completion, China's new goal is to continue on with a HSR revolution internationally in order to create two-day HSR trip times between Beijing and London’, according to the report.

The international network is supposed to include a total of 17 countries and as planned, is likely to be the largest infrastructure project in history. Extending south to Singapore and northeast into Mongolia and Russia, the trans-continental network’s main European connection is likely to go through India, Pakistan and the Middle East, though exact routes are yet to be determined.

China is understood to be in communication with Russia, Iran, Pakistan, India and Myanmar regarding development of the internal rail lines in each of those countries that would connect to the network. In fact, the report points out that construction for the Southeast Asia link has started and Myanmar is about to begin building its portion of the link.

The central and eastern European portions of the network are moving ahead as well, according to Wang Mengshu, a senior consultant working on the project, as mentioned in the report.

China is said to prefer funding the whole project itself in exchange for natural resources it lacks. The aim is to complete this network in 10 years.

The report argues that ‘Clearly, China is intent on this for its own benefit. In exchange for developing the system, it could acquire tons of much needed natural resources from other countries, as stated above. However, perhaps more importantly, creating such a network would probably solidify China's central role in the Asian economy and perhaps even the world economy.’

‘Nonetheless, China says that other countries approached it for help and that is how the idea got started. "It was not China that pushed the idea to start with," said Wang. "It was the other countries that came to us, especially India. These countries cannot fully implement the construction of a high-speed rail network and they hoped to draw on our experience and technology."

As the report suggests, presumably all the countries connected to the network would benefit from better transportation options and increased mobility. However, with China at the center of the process, it is likely to be the biggest winner.

One may ask, as the report does, ’Is China going to make the US' HSR network (if it ever gets built) look like a toy train set? Is this huge system ever going to get built? Is it going to get built in 10 years as China hopes?’

While the answers to these questions will no doubt raise questions of geopolitics and geo-economics, the on-going momentum for this project comes at an interesting time when Europe may be hoping to leverage China’s financial muscle in coping with a looming sovereign debt crisis and in boosting its economic revival.  

China has already shown considerable interest in buying European debt as a further means to export her fast-accumulating surplus capital. The proposal should be even more attractive to China in helping to realize the vision of linking China to Western Europe by high-speed rail.

What is more, this could set a concrete example of how a grand global strategic vision and a win-win partnership could lead to the development of a low-carbon world in addition to helping diffuse a European sovereign debt time bomb, if not another global financial and economic crisis.

This is certainly some food for thought for Premier Wen Jiabao and his European hosts during his forthcoming visit to Hungary, Britain and Germany from 24-28 June next week.

Andrew

http://www.andrewleunginternationalconsultants.com