Thinking like China

There is a very interesting piece in the FT about China building a road in Montenegro, to link the Adriatic port of Bar to Serbia’s capital Belgrade.

The Montenegrin government’s borrowing from China to finance the road’s cost, estimated at €1.3bn, has sent the country’s debt soaring from 63 per cent of gross domestic product in 2012 to almost 80 per cent. If Montenegro were to default, the terms of its contract for the loans even give China the right to access Montenegrin land as collateral.


Europe [is struggling} to develop a coherent strategy to counter China’s ambitions on the continent.

Why exactly is China constructing it?

The money has been lent in US dollars which is interesting – I would have thought China might want to use its own currency, yet, because it probably has a lot of dollars in stock – it is just recycling them so the repayments will still be in dollars. The FT article doesn’t say, but I surmise that much of the labour will be Chinese – certainly the design and origination will be.

Montenegro is part of the Central European Free Trade Agreement which is a sort of learning class for the EU.

With that situation in mind isn’t this something that the European Central Bank (ECB) should be financing? It would get the learning class even more tied in to the EU. This should be a major purpose for the ECB! Yet instead of promoting Europe, it is really battling against it – not just in Greece, but in its general deficit requirements – requiring Italy to review its spending budget and complaining about France’s ignoring of deficit requirements.

If Britain is to remain in the EU (which I would much prefer) then this is what Britain should be promoting – an expansive, welcoming role for the ECB –  promoting skills and investment for Montenegro (whose population is only 650,000) and others in the Central European Free Trade Agreement. That would be a message of hope and inclusion. Instead of the current message of discipline and conformity which is devoid of any hope or aspiration.

Indeed whether or not we stay in, the Bank of England could actually take on a similar role.

Or we could tell Montenegro how money works….

Perhaps the ECB would rather leave it to China?