Press review: ECB buy Volkswagen Securities

Press review with Fabio De Masi

25.07.2016

EUObserver, 22.07.2016

"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. [...] 

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. [...]"

The article "ECB in ‘bail-out’ of scandal-tainted VW" by Peter Teffer is available at euobserver.com

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