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EU official: Europe needs foreign state funds to recycle trade surpluses

EU official: Europe needs foreign state funds to recycle trade surpluses

Europe needs investment from sovereign wealth funds to re-inject the money it is spending on trade with oil suppliers and booming Asian countries, an EU official said Wednesday.
"We need these funds to recycle their surpluses by continuing to invest in Europe," the EU's top financial services official, Charlie McCreevy, said.
Asian countries such as China are increasingly using sovereign wealth funds to invest portions of their growing trade surpluses in Europe and the U.S. while Middle Eastern countries like the United Arab Emirates and Kuwait also use them to further increase recent windfall oil profits.
McCreevy said the European Commission does not want new rules to restrict investments by government-owned funds in Europe _ but each EU nation still had the right to block deals that they believe threaten national security, public order or "overriding objectives of public interest."
The European Commission called on EU leaders _ who will meet at a March 13-14 summit _ to back a set of principles for sovereign wealth funds that would guarantee "transparency, predictability, and accountability."
It stressed that Europe must remain open to capital investments "as they are a vital source of strength for the European economies in globalized world."
But it would ask the funds and the governments that own them to join a cooperative effort with nations where they plan to invest, promising to be more open and explain why they make their investments to avoid suspicions of political interference in other nations.
The EU will push the International Monetary Fund to set up a global code of conduct for sovereign wealth funds and their owners by the end of the year. The Organization for Economic Cooperation and Development is also coming up with recommendations for recipient countries.
Some of these funds were characterized "by a high level of opacity" on their investment criteria and management, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said.
"Sovereign wealth funds must acknowledge that their growing weight in financial markets brings responsibilities," he said.
The EU executive said more than 30 nations now have such funds, most of them launched this decade, and funds now manage some US$1.5 trillion (euro1.01 trillion) to US$2.5 trillion (euro1.7 trillion) and growing _ about half all global currency reserves or the total of all hedge funds and private equity firms.
The funds are now "a small but significant share of the global equity market capitalization of US$50 trillion (euro33.6 trillion)," the EU said.
Three major U.S.-based investment banks already turned to sovereign wealth funds for massive cash injections last year.
Morgan Stanley won US$5 billion (euro3.4 billion) from China Investment Corp., while Bear Stearns Cos. agreed to a US$1 billion (euro670 million) cross-investment from China's Citic Securities Co. and Citigroup Inc. turned to Abu Dhabi's fund for US$7.5 billion (euro5.05 billion).
McCreevy said European regulators were still working on a range of actions to help counter the punches financial markets took in the wake of the U.S. subprime credit crisis that saw many lenders reluctant to take on new debts, making it harder for homebuyers and companies to get loans.
He said he wanted to see the financial industry come up with solutions itself as this would be quicker than new regulation. He called on banks to be open about disclosing losses and curb "wildly expensive remuneration" for top executives.
He also warned credit rating agencies to "shape up" or face regulatory action. Agencies are held partly responsible for the credit crisis by labeling risky investments as good. They are being asked to deal with conflicts of interest and make their rating process more transparent.


Updated : 2020-12-02 07:32 GMT+08:00