Rescue fund head seeks Beijing support in helping to resolve crisis

THE head of Europe’s bailout fund sought financial support from China yesterday to help resolve the bloc’s debt crisis, saying that while no quick deal was in sight, he was still confident Beijing would keep buying bonds issued by the fund.

Klaus Regling, head of the European Financial Stability Facility (EFSF), was in Beijing for talks with Chinese officials a day after eurozone leaders struck a hard-fought accord on the two-year crisis that has left Italy and Spain under market pressure.

After the European summit in Brussels reached agreement in the early hours of Thursday, French President Nicolas Sarkozy immediately sought financial help from China, saying Beijing had “a major role to play”.

But despite a characteristically bullish sales pitch, the French leader did not appear to have received any specific commitments.

European governments had announced an agreement under which private banks and insurers would accept 50% losses on their Greek debt holdings in the latest bid to cut Athens’ debt.

European leaders are now under pressure to finalise the details of the plan if they expect China and others to support it, and Regling said he expected Beijing to continue buying EFSF bonds.

“We all know China has a particular need to invest surpluses,” Regling told a Beijing news conference, referring to China’s $3.2 trillion (€2.3tn) of foreign exchange reserves, the world’s biggest.

Regling said the bailout deal with Greece was an exceptional case that would not have to be repeated for other nations.

Many in financial markets fear the fund is not big enough to cope if Italy and Spain are drawn deeper into the crisis.

Italy’s borrowing costs hit new euro-era highs at a bond auction yesterday. Prime Minister Silvio Berlusconi was forced to promise new reforms and counter speculation that his coalition government was about to collapse.

Despite Berlusconi’s assertion that his centre-right alliance remains solid, critics contend that his reform promises do not go far enough and the country will face early elections next year with no significant progress to show.

France said investment by China would inspire confidence in the eurozone.

“The reality is that China is the third largest shareholder in the IMF, and if China, via the IMF, wants to participate — not by saving Greece or the euro — but by participating in investment, that is a gesture of confidence,” said French finance minister Francois Baroin.

“What is happening in Europe and creating instability is that public and private investors are pulling out,” he said.

Global stocks were heading for their best week in over two years yesterday, bolstered by the Brussels deal, while the euro reached a seven-week high at one stage before falling back, shrugging off the lack of detail in Thursday’s anti-crisis plan.

Key aspects of the eurozone deal, including the mechanics of boosting the EFSF and providing Greek debt relief, have yet to be finalised. It is proving difficult to explain in the meantime and European officials were jeered by journalists at one briefing as they struggled to outline it clearly.

There are fears the latest deal will fall apart like the last one, three months ago, which was also meant to draw a line under the eurozone’s troubles.

Within weeks it was clear that deal was inadequate, given the scale of Greece’s problems and the vulnerability of European banks. The new deal aims to plug these holes.

Under it, the private sector agreed to voluntarily accept a nominal 50% cut in its bond investments to reduce Greece’s debt burden by €100bn, cutting its debts to 120% of GDP by 2020, from 160% now.

The eurozone will offer €30bn in “credit enhancements” or sweeteners to the private sector to get them on board. The aim is to complete these negotiations by year end, so Greece has a full, second financial aid programme in place before 2012.

The value of that package, EU sources said, would be €130bn euros — up from €109bn in the July deal.