Dumping of state bonds by banks must be stopped

27 May 2010

Dumping of state bonds by banks must be stopped

The European 'gentleman's agreement' between banks and governments designed to counter the dumping of southern European bonds is not working. This has become clear now that it has emerged that Ageas, formally the Belgian section of the Belgo-Dutch bank Fortis, has sold such bonds to a value of at least €4.8 billion. SP Member of Parliament and finance specialist Ewout Irrgang is urging the Minister of Finance to join colleagues from other EU member states in drawing up enforceable agreements to put a stop to the dumping.

Ewout IrrgangWhen interest rates on Greek bonds began to rocket, the European Central Bank (ECB) established a new remedial measure which involved buying state bonds from financial institutions in order to drive the rate back down. Although this calmed the financial markets, it also created an easy means whereby banks and insurance companies could get rid of their southern European bonds. Instead of the authorities putting a stop to the mass dumping of southern European bonds, however, they left the matter for the banks and insurers themselves to deal with. "That's putting the fox in charge of the hen-house," says Ewout Irrgang. “The banks and insurance houses are simply not strict enough with themselves and have attached no sanctions to the mass dumping of bonds on to the ECB. Those who aren't sticking to the 'gentlemen's agreement' are now reaping rich rewards."

In just over a week Ageas sold €1.7 billion in Greek bonds, €2.1 in Italian bonds, and €900 million in Portuguese bonds, unloading a mass of its risky bonds in a manner which was completely against the agreement in the buying policy of the ECB. Irrgang wants Finance Minister Jan Kees de Jager to say whether he has discussed the behaviour of Ageas with his Belgian counterpart and is demanding the introduction of measures at European level to counter the mass dumping of bonds.

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