18th Mar 2018


ECB in ‘bail-out’ of scandal-tainted VW

  • Construction of a VW plant in Bialezyce, Poland. The European Bank for Reconstruction and Development put a loan for the project on hold (Photo: Volkswagen Poznan)

The European Central Bank (ECB) has started supporting Volkswagen Group (VW) by buying corporate bonds as part of a programme aimed at boosting the eurozone's economy.

The move stands in stark contrast to the policy of two other European financial institutions, which have temporarily banned working with VW after it emerged that the German company cheated on emissions tests.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

  • The ECB is supporting VW by buying corporate bonds (Photo: ECB)

In effect, the ECB is sending the message that it is neutral about VW's behaviour, a company which New York attorney general Eric Schneiderman this week described as having a “culture that incentivises cheating and denies accountability”.

The value of the bonds is unknown, but on Monday (18 July) the bank, in charge of monetary policy in the eurozone, made public that five VW bonds are among those being purchased.

The bonds have maturity dates between 2017 and 2021, and were bought by the German central bank, the Bundesbank.

The ECB bond buying programme is carried out by six national central banks, including the German institution.

ECB spokesperson William Lelieveldt told EUobserver he could confirm VW bonds were among those being purchased, but said he could give not details about “operational decisions”.

He would also not confirm reports from the Financial Times and the Sunday Times from September 2015. The newspapers wrote at the time, shortly after the VW scandal was brought to light, that the ECB had suspended buying loans backed by VW assets.

It appears that the ECB looks only at the creditworthiness of the assets, and other technical details set out in the legal act that set out its mandate, but does not take into account recent corporate affairs.

'Bail out' of VW

A left-wing German MEP Fabio De Masi said that the German central bank “appears to try to 'bail out' VW via the backdoor”.

VW has already had to put aside €16 billion to deal with the fallout of the crisis, and this week said it reserved another €2.2 billion, as the New York attorney general said he would pursue "substantial penalties".

MEP De Masi, a member of the parliament's committee on monetary affairs, told EUobserver in an e-mail “the bond buying of VW bonds [is] critical regardless of the VW scandal”.

“Corporate bond purchases are subject to moral hazard and vested interests in general,” he said.

The German EU parliamentarian noted the scheme is part of a wider attempt to revive the market of securitisation.

Securitisation is a financial tool through which loans, mortgages or other contractual debts are bundled and sold as securities - electronic documents that give the buyers the right to collect the collateral on overdue payments.

The result is that the risk of those loans is sold off, freeing up money on the sellers’ balance sheets to keep lending.

The European securitisation market collapsed after sales of bad debts in the US helped to create the 2008 financial crisis.

“I see securitisation critical, as it incentivises banks to push bad loans to buyers and involves contagion risks,” said De Masi.

Bond-buying is 'sensible'

His centre-right colleague, Pablo Zalba, saw things differently, however.

The Spanish MEP is also a member of the economic and monetary affairs committee, and will be one of the co-authors of a report from the parliament's inquiry committee on the VW scandal.

Zalba called the bond buying programme “sensible” and said that “the ECB's independence should always be respected”.

“I have no doubt the ECB is fulfilling its mandate,” Zalba said.

The bonds themselves have the required credit ratings, and although their value had a nosedive in the period immediately after the scandal broke, most of them are back at the same level, or higher, as a year ago.

EIB loans 'on ice'

Meanwhile, the European Investment Bank (EIB) has taken a different approach.

The bank, which grants loans to projects that are in line with EU policy, has suspended all lending to Volkswagen Group. A spokesman confirmed to EUobserver this week that the ban is still in place, and referred to a recent newspaper interview with EIB president Werner Hoyer.

In June, Hoyer told the Neue Osnabruecker Zeitung that “all our activities with VW are on ice”.

The ban followed the suspicion that part of a €400 million EIB loan may have been used by VW to develop the engines that were equipped with the cheating software. The ban will be in place until the EU's anti-fraud agency Olaf has wrapped up an investigation.

“We have worked closely and constructively with VW for many years, that's why we are so disappointed by VW's actions,” said Hoyer. He noted that lending from the EIB may become more expensive for VW in the future.

The EIB has supported several VW projects over the years, including loans for the construction and upgrade of production plants in Slovakia (€200 million), Brazil (€91 million), Mexico (€70 million), and Argentina (€45 million).

The loan which may have been misused, was signed on 16 February 2009. An EIB press release said at the time that the loan should “support the development and market launch of greener and more fuel efficient drive train components for passenger cars and utility vehicles”.

It was part of a programme aimed at reducing emissions in Europe's transport sector.

Polish factory

A second investment bank also put a VW project on hold.

The European Bank for Reconstruction and Development (EBRD) was supposed to lend a Polish daughter company of VW up to €250 million, for the construction of a production plant in the Polish town Bialezyce.

However, the loan to Volkswagen Poznan has also been put on ice. It still is, a spokesman for EBRD told this website, but without giving additional details as to when the ban would be reconsidered.

The EBRD was founded in 1991 to stimulate development in former communist and Soviet countries. It is owned by the EU, the EIB, and 65 countries around the world.

A spokeswoman for Volkswagen Poznan did not say if the company is still expecting to receive the loan.

“Whether EBRD plans to loan money to us, please ask the EBRD Bank,” she said, without adding if Volkswagen Poznan still needed the money. The construction of the factory is almost complete.

Diesel cars still dirty, despite huge EU loans

The European Investment Bank lent billions to carmakers, in part to clean up diesel cars. But diesel cars are still dirty, prompting questions if the money was well spent.


Audit the ECB

The European Central Bank's ultra easy monetary policy is not working, with greater transparency needed into the bank's decision-making process.

EIB silent on report into 'fraudulent' VW loan

European Investment Bank vice-president Taylor tells EUobserver the fraud investigation into a €400 million EIB loan to Volkswagen had 'considerable ramifications', but didn't want to explain why the report was kept secret.

News in Brief

  1. Sweden emerges as possible US-North Korean summit host
  2. Google accused of paying academics backing its policies
  3. New interior minister: 'Islam doesn't belong to Germany'
  4. Hamburg 'dieselgate' driver wins case to get new VW car
  5. Slovak deputy PM asked to form new government
  6. US, Germany, France condemn 'assault on UK sovereignty'
  7. MEPs accept Amsterdam as seat for EU medicines agency
  8. Auditors: EU farm 'simplification' made subsidies more complex

Stakeholders' Highlights

  1. Counter BalanceConmtroversial Turkish Azerbaijani Gas Pipeline Gets Major EU Loan
  2. World VisionSyria’s Children ‘At Risk of Never Fully Recovering', New Study Finds
  3. Macedonian Human Rights MovementMeets with US Congress Member to Denounce Anti-Macedonian Name Negotiations
  4. Martens CentreEuropean Defence Union: Time to Aim High?
  5. UNESDAWatch UNESDA’s President Toast Its 60th Anniversary Year
  6. AJC Transatlantic InstituteAJC Condemns MEP Ana Gomes’s Anti-Semitic Remark, Calls for Disciplinary Action
  7. EPSUEU Commissioners Deny 9.8 Million Workers Legal Minimum Standards on Information Rights
  8. ACCAAppropriate Risk Management is Crucial for Effective Strategic Leadership
  9. EPSUWill the Circular Economy be an Economy With no Workers?
  10. European Jewish CongressThe 2018 European Medal of Tolerance Goes to Prince Albert II of Monaco
  11. FiscalNoteGlobal Policy Trends: What to Watch in 2018
  12. Human Rights and Democracy NetworkPromoting Human Rights and Democracy in the Next Eu Multiannual Financial Framework

Latest News

  1. Brexit and trade will top This WEEK
  2. Dutch MPs in plan to shut EU website on Russian propaganda
  3. Four years on – but we will not forget illegally-occupied Crimea
  4. Evacuated women from Libya arrive newly-pregnant
  5. Merkel in Paris for eurozone reform talks
  6. Commission rejects ombudsman criticism over Barroso case
  7. Western allies back UK amid Russian media blitz
  8. Meet the European Parliament's twittersphere

Stakeholders' Highlights

  1. Mission of China to the EUDigital Cooperation a Priority for China-EU Relations
  2. ECTACompetition must prevail in the quest for telecoms investment
  3. European Friends of ArmeniaTaking Stock of 30 Years of EU Policy on the Nagorno-Karabakh Conflict: How Can the EU Contribute to Peace?
  4. ILGA EuropeCongratulations Finland!
  5. EUobserverNow Hiring! Sales Associate With 2+ Years Experience
  6. EUobserverNow Hiring! Finance Officer With Accounting Degree or Experience
  7. UNICEFCyclone Season Looms Over 720,000 Rohingya Children in Myanmar & Bangladesh
  8. European Gaming & Betting AssociationEU Court: EU Commission Correct to Issue Guidelines for Online Gambling Services
  9. Mission of China to the EUChina Hopes for More Exchanges With Nordic, Baltic Countries
  10. Macedonian Human Rights MovementCondemns Facebook for Actively Promoting Anti-Macedonian Racism
  11. Nordic Council of MinistersGlobal Seed Vault: Gene Banks Gather to Celebrate 1 Million Seed Collections
  12. CECEIndustry Stakeholders Are Ready to Take the Lead in Digital Construction

Stakeholders' Highlights

  1. ILGA EuropeAnkara Ban on LGBTI Events Continues as Turkish Courts Reject NGO Appeals
  2. Aid & Trade LondonJoin Thousands of Stakeholders of the Global Aid Industry at Aid & Trade London
  3. Macedonian Human Rights MovementEuropean Free Alliance Joins MHRMI to End the Anti-Macedonian Name Negotiations
  4. Mission of China to the EUChina-EU Tourism Year to Promote Business and Mutual Ties
  5. European Jewish CongressAt “An End to Antisemitism!” Conference, Dr. Kantor Calls for Ambitious Solutions
  6. UNESDAA Year Ago UNESDA Members Pledged to Reduce Added Sugars in Soft Drinks by 10%
  7. International Partnership for Human RightsUzbekistan: Investigate Torture of Journalist
  8. UNICEFExecutive Director's Committment to Tackling Sexual Exploitation and Abuse of Children
  9. Nordic Council of MinistersState of the Nordic Region 2018: Facts, Figures and Rankings of the 74 Regions
  10. Mission of China to the EUDigital Economy Shaping China's Future, Over 30% of GDP
  11. Macedonian Human Rights MovementSuing the Governments of Macedonia and Greece for Changing Macedonia's Name
  12. Swedish EnterprisesHarnessing Globalization- at What Cost? Keynote Speaker Commissioner Malmström