China tells Europe fundamental reforms needed

BEIJING, Oct 21 (Reuters): Chinese Premier Wen Jiabao urged Europe on Friday to stop its debt crisis spreading across the bloc, warning that fundamental reforms were needed to staunch the euro zone's troubles, in comments made after the two sides postponed an annual summit. In a phone call with European Council President Herman Van Rompuy, Wen repeated past comments that China stood by Europe's efforts to surmount its economic crisis. But as European leaders prepare for a weekend crisis meeting on how to increase a euro zone bailout fund, Wen struck a new tone of exasperated urgency. "The most urgent task is to take decisive measures to prevent the debt crisis from spreading further and avoid financial market turbulence, a recession and fluctuations in the euro," Wen told Van Rompuy, according to a report on the Chinese Foreign Ministry's website (www.mfa.gov.cn). Deep divisions between France and Germany threaten to foil the weekend meeting of European leaders. Wen told Van Rompuy that the euro debt crisis "is also the outcome of problems within the European Union and euro zone that have accumulated over a long time." "Apart from urgent measures to address these problems, the key is to undertake systematic and fundamental fiscal and financial reform," said Wen. "This will demand extraordinary political courage and judgement, and will demand a consensus among all sides." China holds an estimated quarter of its $3.2 trillion of foreign exchange reserves in euro assets. It has few options on where to put that wealth, giving it strong reasons to press Europe to surmount divisions, contain the debt crisis and protect Beijing's stake in its biggest trade partner. The euro bloc's crisis has already taken a toll on Chinese exports, which grew at their slowest pace in seven months in September. Wen's latest comments were starker than other recent remarks from Beijing, which has repeatedly voiced confidence that Europe can overcome its problems. "The pressing task is to take decisive measures to prevent the debt crisis spreading further, avoiding turbulence in the euro, market contraction and a severe economic recession," he said. "I've seen that Europe's leaders have an ardent political will, and I hope they can turn their political will into concrete and effective action to safeguard the stability of the euro and European markets to boost market confidence." As recently as Thursday, China's Foreign Ministry stuck to a blandly positive tone, and said Europe's problems would pass and Beijing is willing to expand cooperation. Van Rompuy told Wen that European leaders had to postpone the summit with China to allow them to attend the weekend crisis meeting about the bloc's debt problems, said the Chinese report. The EU issued a statement saying the bloc's schedule of meetings meant the gathering in Tianjin would be rescheduled. Senior European officials led by European Commission President Jose Manuel Barroso and Van Rompuy were originally scheduled to meet Premier Wen Jiabao in the northern Chinese port city of Tianjin. That China-EU meeting was due to open soon after an EU summit on Sunday that will seek to hammer out key parts of an effort to strengthen the euro zone bailout. But on Thursday, European leaders decided that they would need to gather again by Wednesday to work on the crisis. France and Germany said in a joint statement that European leaders would discuss a global solution to the crisis on Sunday but no decisions would be adopted before a second meeting to be held by Wednesday at the latest. Chinese newspapers and magazines have lately echoed with gloomy commentary about Europe. "We can conclude that the euro debt crisis is now worsening to point where it is difficult to solve," Tang Shuangning, the chairman of the China Everbright banking group wrote this week in a popular Chinese newspaper, the Global Times. Chinese leaders do not share that depth of despair for Europe, but face domestic constituencies wary of buying more euro debt and expecting Europe's leaders to pay more attention to China's own demands, said Zhou Hong, director of the Institute of European Studies at the Chinese Academy of Social Science, a state-run think tank in Beijing. "I think the Chinese government remains relatively confident and fair-minded about Europe's future," she told Reuters in an earlier interview. "China doesn't have blind hope," she added. "We know that the transitional period will be long and very painful."