Europe bailout fund chief courts China

Sat Oct 29, 2011 4:07am EDT
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By Aileen Wang and Koh Gui Qing

BEIJING (Reuters) - 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 euro zone beat its two-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 ($623.7 billion) EFSF rescue fund by November.

Expanding the EFSF to 1 trillion euros is key to the euro zone'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."   Continued...