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Reeling from the financial crisis and facing potential funding shortfalls, western banks turned to sovereign wealth funds (SWFs) for support during the credit crunch. In 2007 and 2008, these funds, mainly from Asia and the Middle East, pumped some US$70bn into the ailing institutions.

SEND HELP: Spain's prime minister meets China's vice premier on January 5th 2011

On state visits around Europe this month, Li Keqiang, China’s deputy prime minister, made headlines by suggesting that China stood ready to support the debt of the euro area’s troubled peripheral members. This, along with other sovereign investors’ recent history of dabbling in distressed assets, suggests that SWFs may play a role in alleviating the euro area’s current woes.

With more than US$4trn in assets, according to the SWF Institute, the funds’ collective might would be more than sufficient to cover the existing support facilities for Greece and the joint EU-IMF facility for other euro area economies in need (already tapped by Ireland). But how realistic is this?

Read more at Financial Services Briefing: “Sovereign crisis, sovereign solution” (January 12th)

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