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Central Banks Urged to Buy Corporate Debt
By Tony Barber
Financial Times
Monday, February 16, 2009
Europe's central banks and governments should consider buying corporate debt on an emergency basis to stop businesses going bankrupt in the recession, the leader of the European Union's employers' federation said on Monday.
The proposal of Ernest-Antoine Seillière, president of BusinessEurope, underlined the anxiety of numerous companies about securing access to credit as Europe suffers its most severe economic conditions since the second world war.
EU governments and central banks have pledged hundreds of billions of euros over the past six months in various schemes aimed at saving national bank systems and restoring credit flows to pre-recession levels.
In addition, the EU authorities and governments in the 27-nation bloc have adopted fiscal stimulus packages which, together with automatic recession-driven increases in public expenditure such as unemployment benefit, may amount to as much as 3.3 to 4 per cent of EU gross domestic product in 2009-2010.
However, no European president, prime minister or central bank governor has yet embraced Mr Seillière's suggestion that national governments or central banks should take the radical step of buying up the debt of private sector companies outside the financial sector.
"In the difficult months ahead, it should be the permanent concern of policymakers to ensure that viable businesses can access financing and will not file for bankruptcy as a result of short-term liquidity constraints," Mr Seillière said.
"Important initiatives have already been taken by governments and central banks to address the immediate concerns. However, further exceptional measures should be considered," he said.
"For example, central banks and governments could explore options for temporary schemes to buy commercial paper and other debt instruments directly from companies."
Banks have become less willing to lend to private companies in Europe because of balance sheet constraints and asset writedowns that, in the EU and Switzerland combined, have totalled almost $300bn since mid-2007.
To address the problem, EU finance ministers are looking at proposals to isolate the "impaired assets" of banks from healthy assets, thereby rebuilding confidence in financial markets and encouraging new loans.
Mr Seillière unveiled his proposal in an open letter to Mirek Topolanek, prime minister of the Czech Republic, which holds the EU's rotating presidency and is battling to defend the bloc's single internal market against protectionist pressures.
He said BusinessEurope was "deeply disappointed" that there had been no progress towards a deal on liberalising world trade, in spite of a collective promise in Washington last November by leaders of the G20 group of developed and emerging market economies.
Mr Seillière's organisation, which represents about 20m large, medium-sized and small businesses in Europe, said companies wanted "quick clarification" of important issues such as which European industrial sectors will be classified under EU rules as exposed to "carbon leakage".
He was referring to the complaint of many European business people that the EU is imposing such rigorous carbon dioxide emission standards on its companies that production will shift to countries where the rules are less onerous.
At a summit last December, EU leaders agreed that industrial sectors exposed to a significant risk of "carbon leakage" would be granted free carbon dioxide emission permits.
However, the European Commission wants to see what comes out of an important round of international climate change negotiations in Copenhagen in December before identifying which sectors should receive the free permits.
The aluminium, cement, chemical and steel industries are though most likely to benefit from free permits.
SOURCE: http://www.ft.com/cms/s/0/df28b9bc-fc19-11dd-aed8-000077b07658.html
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