Friday

20th Jan 2017

Investigation

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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

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.

Investigation

Why doesn't the EU have a road transport agency?

There are EU agencies covering maritime transport, aviation, and railways, but road transport never got its own. Some MEPs are now advocating one, to the chagrin of many member states.

Stakeholders' Highlights

  1. Caritas EuropaEU States to Join Pope Francis’s Appeal to Care for Migrant Children
  2. UNICEFNumber of Unaccompanied Children Arriving by sea to Italy Doubles in 2016
  3. Nordic Council of Ministers"Nordic Matters" Help Forge Closer Bonds Between the UK and the Nordic Region
  4. Computers, Privacy & Data ProtectionThe age of Intelligent Machines: join the Conference on 25-27 January 2017
  5. Martens CentreNo Better way to Lift Your Monday Blues Than to Gloss Over our Political Cartoons
  6. Dialogue PlatformThe Gulen Movement: An Islamic Response to Terror as a Global Challenge
  7. European Free AllianceMinority Rights and Autonomy are a European Normality
  8. Swedish EnterprisesHow to Create EU Competitiveness Post-Brexit? Seminar on January 24th
  9. European Jewish CongressSchulz to be Awarded the European Medal for Tolerance for his Stand Against Populism
  10. Nordic Council of Ministers"Adventures in Moominland" Kick Off Nordic Matters Festival in London
  11. PLATO15 Fully-Funded PhDs Across Europe on the Post-Crisis Legitimacy of the EU - Apply Now!
  12. Dialogue PlatformInterview: Fethullah Gulen Condemns Assassination of Russian Ambassador to Turkey

Stakeholders' Highlights

  1. Zero Waste EuropePublic Support Needed to Promote Zero Waste in More Municipalities
  2. Belgrade Security ForumEU Cannot Afford to Ignore the Western Balkans as Populism Surges
  3. Dialogue PlatformFethullah Gulen Calls for an Investigation on the Assassination of Russian Ambassador to Turkey
  4. World VisionAmid EU Talks on Migration, Children on the Move Remain Forgotten and Unprotected
  5. Centre Maurits CoppietersAlex Salmond Receives Coppieters Award for His Service to Scotland and Europe
  6. International Partnership for Human RightsStrong Support for Hamburg Declaration on Human Rights Defenders
  7. Swedish EnterprisesHow to Use Bioenergy Coming From Forests in a Sustainable Way?
  8. Counter BalanceReport Reveals Corrupt but Legal Practices in Development Finance
  9. Swedish EnterprisesMEPs and Business Representatives Debate on the Future of the EU at Winter Mingle
  10. ACCAFifty Key Factors in the Public Sector Accountants Need to Prepare for
  11. UNICEFSchool “as Vital as Food and Medicine” for Children Caught up in Conflict
  12. European Jewish CongressEJC President Breathes Sigh of Relief Over Result of Austrian Presidential Election