The idea of Asia extending a helping hand to Europe has been around ever since the G20 summit in Cannes, France in early November, when world leaders failed to organize exceptional contributions to the International Monetary Fund (IMF) that could help support the eurozone. The hope was revived, however, by European leaders at their latest debt crisis summit in December. 

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Of course, there is something shocking in the idea that Asia should help rescue the eurozone. Europe is remarkably rich by world standards -- and not only in income terms. According to data compiled by the consulting firm McKinsey, Europe accounts for 30 percent of the global financial market, compared with 12 percent for Japan and less than 8 percent for China. It thus seems strange to wonder whether Europe can rescue itself without a helping hand from distant and, in the case of China, considerably less wealthy countries. Furthermore, the politics of helping Europe is dicey in Asia, as countries such as South Korea and Indonesia remember all too well that Europe's advice at the time of the Asian financial crisis in the late 1990s was (except for limited direct assistance to South Korea) "go ask the IMF."

Yet Asia may nonetheless need to come to the rescue, either directly or, most probably, by equipping the IMF with the means to step up its operations in Europe. Why? For starters, Europe is bound by an extraordinary series of self-imposed constraints. First, the European Union and the eurozone do not have taxing power and therefore cannot borrow against the promise of future tax receipts. Second, eurozone member states have not really pooled their resources. Instead, Europe's financial assistance arm, the European Financial Stability Facility (EFSF), relies on guarantees provided by individual member states up to a pre-set limit (limitations also apply to the EFSF's successor, the European Stability Mechanism (ESM), though the set-up is different). Third, the European Central Bank (ECB), which, as a central bank, can create money at will, is uncomfortable doing so in the form of purchasing bonds issued by national governments. As long as these constraints prevail, fiscal resources will be scarce and monetary resources will barely be available.

European leaders unequivocally expressed a desire for outside contributions on Dec. 9, 2011, and European finance ministers voiced support for one or more co-investment funds to attract capital and enhance the EFSF's capacity a few days earlier. The need for financial contributions from emerging countries only became more apparent on Dec. 19, when Britain refused to help increase IMF resources in the absence of a broader international effort. While the Europeans have refrained from naming the countries that they would like to see provide support, China and other Asian countries are in everybody's mind. And while European leaders have also refrained from mentioning numbers, a widely held expectation is that, at minimum, the €200 billion Europe itself is willing to offer the IMF would be matched by the emerging world.  

The need for Asian assistance may now be more evident to European leaders, but why should Asian leaders lend their support? After all, Europe's self-imposed constraints are no argument for providing help. What matters instead is Asia's own interest. And there are two reasons why Asia has a major stake in diffusing the debt crisis: to protect itself from Europe, and to protect itself from the United States.

In the short term, the fallout in Asia from a further aggravation of the European debt crisis would be serious. This is not only because a European recession immediately affects Asia through reduced demand for its goods -- as experienced in 2009 when global trade contracted sharply, triggering a severe growth slowdown in East Asia -- but also because of financial linkages. European banks are major players in Singapore and Hong Kong -- as well as major providers of trade finance in the region. But as these financial institutions confront tighter capital and leverage requirements, they're curtailing credit and deleveraging aggressively, with serious consequences for Asia. Taking into account these linkages, the IMF has produced illustrative but frightening enough numbers: In a stress scenario that sees growth in the euro area decline by 1.3 percentage points, Asian growth declines by 0.4 percentage points. Asia, in other words, needs Europe to overcome this crisis.

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