[BRIEF NOTE] On Brazil's promised bailout of the Eurozone

[rfmcdonald]

After offering to buy Portuguese bonds, rising economic power Brazil has offered to support the Eurozone in its time of trial through purchases of sovereign bonds of different Eurozone member countries. A sign of pure Brazilian altruism? It's as much a Brazilian play for a higher global profile.

Brazil aspires to become the world’s fifth-biggest economy sometime this decade, and senior officials in President Dilma Rousseff’s government see the financial crisis in Europe and the United States as an opportunity to push for a role in global affairs that is commensurate with their country’s rise.

Brazil’s proposal for members of the BRICS group of emerging markets to make coordinated purchases of bonds of euro zone countries, which will be discussed next week in Washington, allows it to portray itself as a diplomatic bridge between the West and the rising economies of Asia -- a role it has long sought.

It also reinforces Brazil’s role as a mature voice of reason, and a net foreign creditor, in the crisis -- a sharp contrast to just a decade ago, when Brazil had to negotiate its own bailout with the International Monetary Fund to avoid default.

By floating the proposal first in the news media, Brazilian officials have ensured themselves maximum exposure despite growing evidence on Wednesday that the idea may not get support from their partners in the BRICS group, which also includes Russia, India, China and South Africa.

The money on the table appears to be largely symbolic, and insignificant compared to Europe’s financing needs. Brazil, for example, would not make its $352-billion in foreign reserves available for European bond purchases, relying instead on a sovereign wealth fund that as of August totaled only about $9-billion, an official told Reuters.

The bottom line is that, rather than providing a major lifeline to Europe as some investors had originally hoped, the bond-buying proposal may ultimately end up advancing Brazil’s interests as much as anyone else’s.

The other BRICS economic powers, notably, seem less than enthusiastic about the idea of helping bail out Europe.