When investors begin to lose confidence in a country’s ability to pay off its debt, they demand higher interest rates on the country’s bonds to cover the risk of loaning it money. When its borrowing costs rise, an ailing country has an even harder time raising money to pay off the debts it has. Borrowing costs are up this year in European countries considered more vulnerable as investors look to put their money somewhere they think is safer.
Growing into its role as a global economic power, China is pledging to buy billions of dollars' worth of bonds in European governments to help restore confidence in the debt-ridden region. The move is the latest evidence that the giant Asian nation is developing ties with strategically important trading partners and expanding its influence in areas where it has long played a minor role. In what European media have dubbed a charm offensive, Chinese Vice Premier Li Keqiang was all smiles on a recent swing through the continent, assuring the Germans that their economy was complementary to China's and praising the Spanish as good friends. He also dispensed plenty of largess, promising to aid the souring economies of Spain and Portugal — pledges that were seen as more than just goodwill.
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