German Chancellor Olaf Scholz warns of “the debt trap” for the countries of the South
German Chancellor Olaf Scholz at the World Economic Forum in Davos on May 26, 2022. AP - Markus Schreiber
Text by: RFI Follow
3 mins
Germany is worried about a possible new financial crisis which would threaten the countries of the South.
During a debate at the 102nd Catholic Congress in the German city of Stuttgart, Olaf Scholz expressed concern about what he called "
the debt trap
" for poor countries especially for loans contracted with China.
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The influx of long-term loans granted by China to poor countries, particularly in Africa, constitutes "
a serious danger
" of seeing the world plunge into a new financial crisis, said the German chancellor.
Beijing is accused by the West of using its
New Silk Roads
program to influence other states.
These countries, especially poor countries, when they can no longer repay the money lent, end up having to cede control of their key assets.
Example: the huge projects in Sri Lanka which have increased the country's external debt or even Zambia, in default of payment, since 2020 because of its debt, a third of which would be held by China.
To counter Chinese influence, Brussels has set up a plan to help sustainable development, called Global Gateway.
It is 300 billion euros, of public and private origin, that Europe aims to collect, by 2027, in order to invest in infrastructure projects around the world.
“
China would benefit from joining the Paris Club
”
According to the German Chancellor, Olaf Scholz, "
the debt trap
" threatens the countries of the South.
He says he is ready to convince China to join the Paris Club, this informal group of public creditors whose role is to find solutions for the repayment or rescheduling of the debt.
Reached by RFI, Philippe Crevel, economist, director of the Cercle de l'Epargne, believes that China would benefit from joining the Paris Club because according to the OECD, there are already around forty countries at risk of default. payment in the face of the debt they are unable to repay.
“
Emerging and developing countries face increasing problems with their external debt.
Inflation, the need for foreign currency to finance imports or even the rise in interest rates which increases the cost of loans are factors which explain why an increasing number of States, in Africa in particular, are on the verge of defaulting on payment
,” he says.
"
China refuses to participate in the Paris Club because China prefers to negotiate on a case-by-case basis, like:
'we can cancel a debt or part of your debt for you, but we will take possession of the infrastructure that we have built a bridge, etc..."
It is a balance of power that is different, but it is certain that in the coming months, if there are increasing risks of bankruptcy, China could have an interest in integrating the Club of Paris because it is still the way, for all the actors, to be reimbursed at least, in the event of a problem.
This would be a positive message to indebted countries
,” continues the economist.
Read also: Paris Summit: Avoiding Africa's dropout
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