Japan, like China, cautious on euro rescue vehicle

By Tetsushi Kajimoto


Other potential buyers, such as Brazil and Russia, have indicated they are willing to support the euro zone either through the IMF or bilateral talks with individual member countries.

European Financial Stability Facility (EFSF) Chief Executive Klaus Regling was in Tokyo after courting China over the weekend.

Europe is looking to countries with big foreign exchange reserves, such as China, Japan and major emerging economies, to provide the extra financial firepower to strengthen the fund four- to five-fold, to about 1 trillion euros.

Japan is already the biggest holder of EFSF bonds outside of the euro zone bloc and Tokyo has in the past indicated it would be willing to buy more, but first it wanted to see Europe taking decisive steps to contain its sovereign debt crisis.

"The Japanese government will continue to buy the EFSF bonds that we have been issuing over the last 10 months and we will continue to be in contact about future operations," Regling told reporters after a meeting with Takehiko Nakao, Japan's vice finance minister for international affairs.

Regling had tried to entice Beijing to invest by saying investors may be protected against a fifth of initial losses and that bonds could eventually be sold in yuan if Beijing desires.

China has powerful reasons to contribute, including supporting the recovery of its single biggest export market and protecting the value of the 600 billion euros of euro zone sovereign debt it already holds, but Regling's pitch drew a cautious response from Beijing.

China's careful stance had been underscored on Friday by Vice Finance Minister Zhu Guangyao, who said Beijing was awaiting details on new investment options for the EFSF before deciding its next move.


EFSF chief Regling travelled to Asia after European leaders on Thursday struck a hard-fought accord aimed at tackling the two-year crisis that has already required financial rescues of Greece, Portugal and Ireland.

A key element of the agreement is to leverage the EFSF to 1 trillion euros, though Europe has yet to work out the details and European governments remain wary of pledging more money.

Market economists have been calling for a rescue fund with twice the resources under discussion in Brussels, and the deal failed to ease bond market pressure on major economies Italy and Spain.

One idea for boosting the fund is to offer insurance, or first-loss guarantees, to those buying euro zone debt in the primary market.

Another is to set up a special purpose investment vehicle (SPIV) aimed at attracting investment from cash-rich emerging powerhouses such as China and Brazil.

Japan holds about 2.7 billion euros, or 20 percent, of the total bonds issued by the EFSF after it purchased them in January and June. But it is not clear whether it would be interested in investing some of its $1.2 trillion in currency reserves in the new special vehicle.

Brazil has given a cautious response to buying EFSF bonds in the future, saying it needs more information about the SPIV. Indeed, the South American country is willing to help the euro zone via a bilateral agreement with the IMF, a senior government source said on Friday.

Russia is also ready to support the bloc, but through bilateral talks with euro zone members or via the IMF, the Kremlin's top economic adviser, Arkady Dvorkovich, said on Monday.

Beijing, which holds the world's largest foreign exchange reserves of some $3.2 trillion, has expressed confidence that Europe can overcome the debt crisis, but has made no public offer to buy more European government debt.

Jean-Claude Juncker, chairman of the Eurogroup gathering of euro zone finance ministers, said on Sunday that it made sense for China to invest its surplus in Europe but this would not involve political concessions.

The appeal for Chinese help has come under fierce criticism for potentially weakening Europe's negotiating position in political and economic disputes with Beijing.

"The fact that China and others might be involved in a comprehensive solution does not make me worry in the slightest, because China has an improbably large surplus so it makes sense for China to invest this in Europe," Juncker told German public broadcaster ARD.

(Writing by Tomasz Janowski and Alex Richardson)