(BN) EIB Said to Get Similar Exemptions From Greece Writedowns to ECB

This about sums it up.  The EIB, whose debt somehow doesn’t count against any of the countries that support it, also doesn’t take losses on debt it buys.  And why exactly does the EIB own Greek government bonds?

 

+——————————————————————————+

 

EIB Said to Get Similar Exemptions From Greece Writedowns to ECB

2012-02-29 00:00:35.0 GMT

     (For more on debt crisis click on EXT4.)

 

By John Glover and Esteban Duarte

     Feb. 29 (Bloomberg) — The European Investment Bank, the

development lender for the 27-member bloc, is getting a similar

exemption from Greek debt writedowns to the euro area’s central

bank, said two regional officials familiar with the matter.

     The European Central Bank negotiated a deal to avoid the

53.5 percent loss on principal that’s costing private investors

as much as 106 billion euros ($143 billion). The EIB, which

unlike its Frankfurt-based counterpart represents the entire

European Union, also owns Greece’s debt and is sidestepping the

so-called haircut in the same way, said the officials, who

declined to be identified because the plan isn’t public.

     “This continues the trend of burden-shifting,” said

Gabriel Sterne, an economist at London-based brokerage Exotix

Ltd. “This is bad crisis resolution and it’s going to affect

things for years to come.”

     The ECB bought Greek and other euro-region government debt

in an attempt to hold down borrowing costs amid the sovereign

crisis. Making private-sector investors effectively subordinate

to the claims of official bodies risks making it more expensive

for countries to borrow in the future.

     Peter Munro, the head of investor relations and marketing

at the EIB, declined to comment, as did a spokesman at the ECB.

     The Luxembourg-based EIB’s holding of Greek debt totals

more than 100 million euros and less than 1 billion euros, one

of the officials said.

 

                         ‘Risk Premia’

 

     “This bolsters the case for pricing in additional risk

premia in peripheral bond markets,” said Richard Mcguire, a

senior fixed-income strategist at Rabobank International in

London. “While the EIB’s holdings of Greek debt are small, if

true, this exception further underlines the unevenness of the

playing field.”

     The bank is the EU’s main development lender and is owned

by all its member states, while the ECB serves the 17-nation

euro area. The EIB invested 72 billion euros in 2010, about 88

percent of which was spent on projects within the EU, according

to its website. Vice President Wilhelm Molterer said in December

that the bank would cut lending this year amid the euro-region

crisis.

     The EIB funds itself in the bond markets and raised about

$22.5 billion this year from benchmark issuance in dollars,

euros and pounds, according to data compiled by Bloomberg. The

bank has top credit grades from Moody’s Investors Service,

Standard & Poor’s and Fitch Ratings.

     “This is all politics,” said Sebastian Paris-Horvitz, the

chief market strategist at HSBC Private Bank Suisse SA in

Geneva. “Defaulting toward any official institution of the EU

would not fly well at this stage.”

 

For Related News and Information:

For Europe’s debt crisis: CRIS<GO>

Top bond stories: TOP BON <GO>

Top financial news: TOP FIN <GO>

 

–With assistance from Matthew Brockett in Frankfurt and Hannah

Benjamin and Abigail Moses in London. Editors: Paul Armstrong,

Andrew Reierson

 

To contact the reporters on this story:

John Glover in London at +44-20-7073-3563 or

johnglover@bloomberg.net;

Esteban Duarte in Madrid at +34-91-700-9606 or

eduarterubia@bloomberg.net

 

To contact the editor responsible for this story:

Paul Armstrong at +44-20-7330-7185 or

parmstrong10@bloomberg.net