EU bail-out fund chief seeks money from China and IMF

Europe’s sovereign debt bail-out fund could team up with the International Monetary Fund (IMF) in a bid to attract Chinese investment, the fund's boss said in Beijing this morning.

The Telegaph,
26 October, 2011

As he prepared for meetings with senior Chinese finance officials, Klaus Regling, chief executive of the European Financial Stability Facility (EFSF), said that it was “a possibility” that his fund could create a joint funding vehicle with the IMF.

China has hinted strongly in the past that it is reluctant to invest too heavily in a European-only bailout structure, raising concerns about the ability of Europe’s leaders to take concerted political action to end the debt crisis.

Asked if he believed China would prefer to deal with an IMF-backed vehicle, Mr Regling hinted that the possibility was being considered.

“I came here to find out [the answers] to some of these questions,” he told reporters at a press briefing in Beijing. “It would be one possibility to have an SPV [Special Purpose Vehicle] together with the IMF, but that needs to be explored and nothing has been decided in that respect.”

Mr Regling's comments clash with a statement made by George Osborne in the House of Commons yesterday, when he insisted Britain would not pay for the bail out of Europe via its contributions to the IMF.

The Chancellor said it was not within the mandate of the IMF to invest in such a fund, and that the organisation could only extend loans to individual countries with which it had agreed a rescue programme.

Mr Regling arrived in Beijing a day after EU leaders announced plans to leverage up its current €440bn (£387bn) bailout fund to $1 trillion, either by using the money as a form of insurance to encourage purchases of sovereign debt, or through a new special purpose investment vehicle.
China, which already holds a quarter of its foreign exchange reserves in the Euro, could be willing to contribute "between $50bn (£31bn) and $100bn" to a new European Stability bond vehicle, the Financial Times reported, citing a person "familiar with the thinking of the Chiense leadership."

However Mr Regling cautioned against any hopes of a dramatic announcement following his meetings later on Friday at China’s Ministry of Finance and central bank, adding that he expected it would take “several weeks” to hammer out the details of the new financing schemes.

“There are no negotiations going on, and these are regular consultations at an early phase and there will be no conclusions, certainly today, during our visit,” he said.

China’s vice finance minister Zhu Guangyao has also said the issue is not even on the agenda at the upcoming G20 Summit.

China’s leaders, while pledging support to their largest export market, have warned their European counterparts against expecting “charity” from China which has US$3.2 trillion in foreign exchange reserves.

However Mr Klaus said he was “optimistic” that China – which has already invested in the first round of AAA-rated EFSF bonds – would continue to buy the products, driven in part by a need to find a safe haven for their own foreign exchange reserves.

“China must invest [in foreign currencies] every month because their current account has a surplus. The foreign exchange reserves of China go up every month, and therefore there is a need for investment.

“My experience talking to the Chinese authorities is that they are interested in finding attractive, solid, safe investment opportunities, and I’m happy that EFSF bonds have been considered to be in that category in the past.

“Therefore I am optimistic that we will have a longer term relationship that will continue to provide safe, effective investment opportunities,” he said.