WRITTEN QUESTION by Rodi Kratsa-Tsagaropoulou (PPE) to the Commission
Recently, the State investment company, Dubai World Group, announced a six-month suspension of its debt repayments, causing convulsions on stock exchanges and markets in the Middle East and worldwide and threatening the biggest State bankruptcy since Argentina in 2001. The Group, which until recently employed more than 50 000 staff in 100 cities worldwide, announced that it was in ‘constructive’ talks to restructure debt of 26 billion dollars, whereas international credit institutions estimate the Dubai government's debt to be some 100 billion dollars. At the same time, a recent report points out that the international business community's major problem in 2010 will be spiralling debt. A significant part of this debt consists of corporate bonds of companies in Russia and the United Arab Emirates. Several analysts stress the risk of similar events occurring in Shanghai and Mumbai owing to excessive spending and leverage.
1. Given that the Dubai World Group has significant investment holdings in the Member States of the Union and that numerous European companies, in particular banks, have investments in Dubai and the Middle East region, to what extent does the Commission consider that such crises may have an impact on the European economy? Which countries in the eurozone are particularly vulnerable to this crisis? Does it consider that there are inherent risks to European investments in the lack of corporate governance transparency in developing markets, such as Dubai?
2. What are the implications of the current crisis for concluding negotiations on a free trade agreement between the EU and the States of the Gulf Cooperation Council?
3. In the Commission's view, how can the nascent European Systemic Risk Board and the other European supervisory authorities protect the European economy against upheavals and regional economic crises in the developing and emerging economies?
ANSWER given by Mr Almunia on behalf of the Commission
1. The exposure of European banks to Dubai is not systemic for any Member State. EU banks exposure towards the United Emirates countries represents a very small share of their overall exposure. Therefore, it is not very likely that the Dubai crisis will have a significant impact on the European economy.
Total exposure towards the United Arab Emirates (UAE) of the banks reporting to the Bank for International Settlements (BIS) is about EUR 78 billion of which EUR 60 billion (76 % of the total) is held by EU‑27 banks. Among the largest European countries, the biggest exposure of banks towards the UEA is in the United Kingdom, followed by France and Germany, as their claims in the UEA amount to EUR 36.8 billion, EUR 8.3 billion and EUR 7.8 billion respectively. However, even for the United Kingdom, the most exposed Member, this amount does not represent any systemic risks, as it represents only 1 % of the United Kingdom's overall foreign banking exposure. Furthermore, the abovementioned data refer to the overall exposure towards the UAE and the European exposure towards Dubai World Group is even smaller.
The default of state-owned Dubai World Group has had consequences for the UAE public finances since the company required bail-out from public resources (mostly from the Abu Dhabi sovereign fund). Therefore, the debt crisis in Dubai has triggered concern over sovereign debt risk worldwide. After two years of worrying about mortgage and corporate risk, attention is now shifting to managing the risk of country defaults and bankruptcies of heavily indebted regional governments and city administrations. Although, it is important to note that Dubai's case is very particular and the overall exposure of European banks is not systemic in nature, the impact of the Dubai debt crisis on the financial markets in emerging economies could be non-negligible.
2. Currently negotiations are stalled. The last informal meeting between the EC and the Gulf Cooperation Council (GCC) chief negotiators took place in summer 2009 in Brussels.
3. The establishment of the European Systemic Risk Board (ESRB) and the European Supervisory Authorities (ESAs) represents a robust reform of the EU supervisory architecture, thereby improving the resilience of the European financial system against external shocks. The ESRB will be responsible for identifying risks with a systemic dimension and preventing or mitigating their impact on the financial system within the EU. While its final objective will be to preserve financial stability within the Union, this will require assessing also potential risk arising from outside the Union, including developing and emerging economies. The significant integration of financial systems at the international level implies the ESRB will have to coordinate with international institutions, particularly the International Monetary Fund and the Financial Stability Board as well as the relevant bodies in third countries on matters related to macro-prudential oversight. The ESRB will also cooperate closely with the ESA responsible for micro-prudential supervision, as macro and micro supervision are difficult to disentangle. At their level, the ESAs will also coordinate with international organisations and supervisory authorities of third countries, and may assist in preparing equivalence decisions pertaining to supervisory regimes in third countries.
Źródło: Parlament Europejski
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