Europe bailout fund chief courts Chinese investment
By Aileen Wang and Koh Gui Qing ,Reuters Sunday, October 30, 2011, 11:27 pm TWN
BEIJING -- The head of Europe's rescue fund sought to entice China on Saturday to invest in the facility by saying investors may be protected against a fifth of initial losses and that bonds could eventually be sold in yuan if Beijing desires.
Klaus Regling was in China to persuade Beijing to stump up money and help the eurozone beat its 2-year-old debt crisis. He said the European Financial Stability Facility (EFSF) may invest in a special purpose vehicle and absorb the first 20 percent of losses.
Regling did not say whether China had asked for that degree of protection and declined to comment on his meetings in Beijing. But he said he expected to submit a proposal on how to scale up the 440-billion-euro (US$623.7 billion) EFSF rescue fund by November.
Expanding the EFSF to 1 trillion euros is key to the eurozone's latest anti-crisis plan, put together at a Eurozone summit this week. Details on how this would be done have yet to be finalized and European leaders are under pressure to show the plan would work.
"The EFSF will take a certain tranche that will be a junior tranche, which means if something goes wrong, the first loss will be carried by the EFSF. It could be around 20 percent," Regling told students at the Tsinghua University.
Regling, chief executive of the EFSF, said the fund could sell bonds in yuan in future if Beijing so desired. But he said that would be difficult to pull off right now.
"We have so far only issued euro bonds but we are authorized to use any currency we want if it seems efficient," he said.
"It also depends on the Chinese authorities, whether they would approve that. I think it is probably more difficult. But I could imagine that over the years it might happen."
Why China Should Bite
Regling was visiting cash-rich China two days after eurozone leaders struck the deal to boost the firepower of the EFSF, recapitalize banks and reduce Greece's crippling debt burden.
French President Nicolas Sarkozy immediately got on the phone to China after the summit to seek financial help, saying Beijing had "a major role to play."
Europe has said the EFSF may be expanded either by offering insurance to buyers of eurozone debt in the primary market, or via a new special purpose investment vehicle that it hopes would draw funds from China and Brazil, among other countries.
The deal has left major economies Italy and Spain under pressure. Italy's borrowing costs jumped at a bond auction on Friday. Prime Minister Silvio Berlusconi was forced to promise reforms to quash speculation that his government was about to collapse.
Regling made clear he wanted to determine what it would take for Beijing to put more money in the EFSF. But he hinted it was also in China's interests to have a healthy euro and an alternative to the U.S. dollar as a reserve currency.
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