Sarkozy Said to Plan Plea to China for EU Fund

By Jonathan Stearns and Helene Fouquet - Oct 27, 2011 2:02 AM GMT+0700
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Hu Jintao, China's president. Photographer: Joshua Roberts/Bloomberg

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Oct. 26 (Bloomberg) -- Mike Franklin, head of investment strategy at Beaufort International, discusses today's European debt crisis summit in Brussels. He speaks with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

French President Nicolas Sarkozy plans to call Chinese leader Hu Jintao tomorrow to discuss China contributing to a fund European leaders may set up to bolster their debt-crisis fight, said a person familiar with the matter.

The investment vehicle was one of the options being considered by European leaders at a summit tonight to expand the reach of its 440 billion-euro ($612 billion) European Financial Stability Facility.

Sarkozy’s plea to his Chinese counterpart would come the day before a planned visit to Beijing by Klaus Regling, chief executive officer of the EFSF, to court investors.

The EFSF, established last year to sell bonds to finance loans for distressed euro nations, has since also gained the authority to buy sovereign bonds on the secondary and primary markets, offer credit lines to governments and recapitalize banks as the Greece-triggered debt troubles have spread. The EFSF said Regling’s visit to China this week is linked to the fund’s original debt-issuance role.

“It is a normal round of discussion with important buyers of EFSF bonds,” Christof Roche, spokesman for the Luxembourg- based facility, said by e-mail today. He declined to comment further when contacted by Bloomberg News by telephone. Agence France-Presse reported that Regling will travel on to Tokyo, citing a European Union official in Asia.

China may be willing to respond to a European request to help them fund a package to solve the euro region’s debt crisis, AFP said, citing unidentified government officials familiar with the situation.

International Calls

Europe is facing international calls to end a debt crisis that President Barack Obama has said “is scaring the world” and U.S. Treasury Secretary Timothy F. Geithner has described as a “catastrophic risk.” With a Group of 20 meeting looming on Nov. 3-4, euro-area government heads gathered in Brussels today for the 14th time to tackle troubles that began in Greece two years ago, then engulfed Ireland and Portugal and now threaten Spain and Italy.

The question of leveraging the AAA rated EFSF has arisen because of the political hurdles in countries such as Germany, the biggest European economy, to increasing the national guarantees that back the fund. Talks about creating a special investment vehicle funded by public and private investors began this week and its effectiveness would hinge on negotiations with credit-rating companies and international investors, according to people familiar with the deliberations.

A second leveraging possibility being considered is to let the EFSF guarantee a portion of national debt sales in the euro region. Neither option excludes the other.

EFSF Sales

As part of its original role, the EFSF is providing 17.7 billion euros under Ireland’s aid package of 67.5 billion euros and 26 billion euros under Portugal’s rescue of 78 billion euros. So far, the EFSF has sold two five-year bonds and one 10- year security, all in the first half of this year. The Japanese government bought more than a fifth of the inaugural issue in January.

On Oct. 13, the EFSF announced changes to its bond-sale program for the two countries in the second half of 2011. Instead of selling four “benchmark” bonds in the period, as outlined in mid-May, the fund will sell one security for Ireland valued at 3 billion euros and delay issues planned for Portugal until “early 2012.”

The EFSF may have to finance more than 70 billion euros of a planned second aid package for Greece. The initial Greek rescue of 110 billion euros in May 2010 was composed of loans directly from euro-area governments and the IMF.

To contact the reporters on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net; Helene Fouquet in Brussels at hfouquet1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net