BRUSSELS, Belgium — After months of doom, gloom and predictions of the euro’s impending demise, you might think the prospect of good economic news from Europe was as likely as pigs taking flight.
The first working days of 2011 were therefore bit of a surprise.
There were reports that China had pledged to spend billions buying up the bonds of Spain and other debt-ridden eurozone nations — a clear sign of Beijing's confidence in the Europeans' ability to pay back the loans.
Then there was the rush to scoop up the first tranche of bonds issued by the European Union to finance an 85 billion euro ($111 billion) bailout for Ireland. It took less than half-an-hour to sell 5 billion euros in bonds, with Asian investors again taking the lead.
Ireland also helped itself with the news that surging exports had boosted corporate tax revenues by 700 million euros, 21 percent more than the government had predicted.
Germany continued to bounce back. Europe’s biggest economy is set to record 3.6 percent growth over 2010, the best figures since reunification two decades ago. Retail sales made their biggest gains in five years and German manufacturing companies saw orders surge by 5.2 percent.
It all seems too good to be true — of course the news hasn’t been all rosy.
On Friday, EU figures showed eurozone third-quarter growth figures lower than expected at just 0.3 percent down, half the U.S. rate and down from 1 percent in the previous three months. The currency slumped to a four-month low against the dollar.
Top of the eurozone worries is Portugal, which was forced Friday to pay a record 7.25 percent interest on its 10-year government bonds by investors who fear that it won’t be able to honor its debts. Portuguese borrowing costs shot to a record-high on Friday ahead of next week's bond auction, further intensifying worries.
The Portugese government says its austerity budget will put public finances back on track, but next week could prove a key test of confidence as the country tries to raise 1.25 billion euros on the markets. Some economists are saying Portugal should already make use of the EU’s 750 billion euro rescue fund.
The fund was set up last year after revelations of the dire state of Greece’s public finances sparked a crisis which spread to other eurozone nations.
Although the EU joined with the International Monetary Fund to bail out Greece to the tune of 110 billion euros in May followed by the 85 billion euro rescue of Ireland in November, claims that tensions within the eurzone could pull the currency apart have persisted.
They are fueled by concern that Germany and other more successful eurozone nations will be unwilling to continue pumping money into the weaker members.
While those concerns may be exaggerated, China’s support in the meantime has been welcome in Athens and Madrid.
Beijing has around 2 trillion euros in foreign reserves, so undoubtedly has the monetary muscle to help Europe out.
It’s also keen to avoid economic uncertainty in its biggest export market; wants to diversify its bond investments away from the $907 billion it holds in U.S. government paper; and is keen to reverse the euro’s slide on currency markets, which have made European exports more competitive with Chinese goods.
“China’s support of the EU’s financial stabilization measures and its help to certain countries in coping with the sovereign debt crisis are all conducive to promoting full economic recovery and steady growth,” Li Keqiang, China’s influential vice premier wrote in Germany’s Sueddeutsche Zeitung during a European tour this week.
China may also seek a political quid pro quo. Beijing wants the EU to grant it market economy status and also seeks an end to a European arms embargo dating back to the 1989 crackdown in Tiananmen Square.
Europe is certainly hoping for more Chinese help, but in the end its own efforts will decide the euro’s fate in 2011.
The optimists’ scenario has austerity budgets in Greece, Ireland, Spain and Portugal, backed by a more permanent support mechanism approved by EU leaders in December, eventually calming the markets.
Despite last years’ spate of lurid headlines about the euro’s looming collapse, German officials recognize that the country has more to lose from a breakup of the eurozone than from bailing out its partners, at least for as long as they stay on the path of fiscal responsibility.
Likewise few mainstream politicians in Greece or Portugal believe that resurrecting drachmas or escudos would calm jittery markets.
The euro got a vote of confidence on New Year’s Day, when Estonia became the 17th EU nation to adopt the currency.
Estonia may be small, but it’s arguably the EU’s best-run economy. Growth is expected to hit 4.4 percent this year, the budget is close to balance and public debt is just 8 percent.
“What the euro means to us is security,” Prime Minister Andrus Ansip told the nation after withdrawing his first euro bills from an ATM in Tallinn.
“We are now a full member of the second biggest financial region in the world, with all the advantages and obligations that brings.”