Euro bailout chief heads to China for bond talks
Visit comes as EU officials mull plans to open up stability fund to foreign investors
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Thursday 27 October 2011
The head of the European bailout fund will travel to China on Friday, as officials study plans to enlist the support of foreign investors in resolving the currency bloc's debt crisis.
Klaus Regling, the chief executive of the European Financial Stability Facility (EFSF), will fly to the country to talk to buyers of bonds issued by the fund, his spokesman said yesterday.
China is believed to have invested in the three bonds issued by the EFSF to support Portugal and Spain, buying in alongside other international investors.
"Mr Regling will hold talks on Friday in China with important investors in EFSF bonds," said a spokesman for the Luxembourg-based fund, which was set up last year.
The visit comes as policymakers consider plans that could see the fund set up a 'special purpose investment vehicle' (SPIV) to buy up bonds issued by distressed European countries. This vehicle, which would offer varying returns by dividing the risk among investors, could be financed with private and public money from countries such as China and Brazil, reducing the pressure on Europe's stretched coffers.
But some analysts warned last night that emerging economies might be wary of participating in such a mechanism, pointing out that there have been reports of the Chinese riding to Europe's rescue in the past. And although there have been signs of some support, they are limited, according to a senior credit analyst in London.
"We've been through this before, with rumours that China was going to buy Portuguese bonds and rescue them," he said. "If you're China, you might [instead] be very interested in buying state infrastructure assets that give you better returns and link with your strategic priorities."
The same logic, he added, applies to other foreign investors such as Gulf states, many of whom have seen little gain from their investments to support big banks during the credit crunch. "Although it's not a direct parallel, sovereign wealth funds generally have been pretty burnt on the previous injections into global bank equities," he said.
The scepticism was laid bare earlier this week when the Brazilian finance minister Gudio Mantega said: "I believe that European countries do not need funds from Brazil to buy bonds... they have to find solutions to the European problems within Europe."
Paul Sheehan, the chief executive of Hong Kong-based hedge fund Thaddeus Capital, said China could step in on a country-by-country basis.
"I think you can see China participating, possibly country by country, because it's easier for them to get concessions on investments and imports and trades and other things at the sovereign level rather than from the EU."
Gavin Nolan, a director of credit research at the financial data firm Markit, is more optimistic, saying that China might be open to investing in an EFSF SPIV, as "they have been buying peripheral debt, though it is not clear how much". But he said it is difficult to know whether Europe would go down that route in the first place, given Germany's apparent preference for the alternative model of using the fund to provide sovereign bond insurance.
"The main problem with the SPIV route is that will take a long time to set up and source the funds," said Nolan, adding that leaders might opt to combine the two options.
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