Europe's debt crisis to affect China

For more than a year the European Union has been faced with a sovereign debt crisis, which its leaders have failed to resolve so far. The impacts of this crisis are being felt in economies across Europe, and China cannot count on escaping its influence.

Underlying the current crisis is the huge level of government debt built up over many years in several EU countries. A key element of the cure being adopted in the eurozone is austerity. Above all this involves reductions in government deficits by spending cuts, which may be also accompanied by increased taxation.

The most obvious example of this approach is in Greece, but it has also been followed in Ireland and Portugal, the other bail-out countries. They are not alone, Italy has also been forced to adopt an austerity budget, as has Spain. The approach has also been adopted outside the eurozone in the UK, which has sought to pre-empt any crisis by introducing its own austerity measures.