China's Wen says reform key to solving EU crisis

(BEIJING) - China's Premier Wen Jiabao told the European Union president Friday that financial reforms were key to solving the eurozone debt crisis threatening the world economy.

Wen said China, the world's second-largest economy, supported EU efforts to solve the crisis after leaders of the 17-nation bloc called a second summit for next week amid persisting disagreements over how to tackle it.

"The key to solving the problem lies in fundamental institutional reforms on the fiscal and financial fronts," Wen told Herman Van Rompuy in a telephone conversation, according to an official statement.

"This needs extraordinary courage and resolution, as well as consensus between all parties."

Wen also said he hoped EU leaders would "turn political will into concrete and effective action, maintain the stability of the euro and... boost European market confidence".

Europe's struggling economies are now increasingly looking to cash-rich China -- which is investing a rising portion of its world-leading foreign exchange reserves in euro-denominated assets -- as a possible rescuer.

China, anxious about its investments in euro-denominated bonds and weakening demand for its exports, has repeatedly expressed confidence in the region and has vowed to buy European sovereign debt to shore up their flagging economies.

Chinese assistance for the eurozone was to have been high on the agenda at an annual EU-China summit that was planned for next week but has been postponed as leaders battle to find a way forward on the crisis.

The two sides had been expected to focus on the deepening crisis during the summit, with contentious issues such as human rights and the value of China's currency taking a back seat as debt-laden Europe seeks China's help.

The European Union is China's largest trade partner. Total trade between the two sides reached $480 billion in 2010, according to Chinese statistics.

EU ministers were to begin pre-summit talks Friday, amid hopes their leaders will agree to strengthen the European Financial Stability Facility (EFSF), Europe's financial rescue facility, and to recapitalise banks.

France and Germany have been scrambling to overcome differences over how to beef up the fund to save weak economies such as Greece as well as the likes of Italy and Spain.

The EFSF currently has a limit of 440 billion euros with which to rescue nations in trouble but would need much more if it had to throw a lifeline to strugglers such as Italy or Spain, Europe's third-and fourth-largest economies respectively.

One option under discussion is to use the cash as insurance for investors facing possible losses on their holdings of bonds issued by weaker member states, but there are deep divisions over the best solution.