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FINANCIAL SERVICES : COMMISSION TO LOOK AT SOVEREIGN WEALTH FUNDS, SAYS ALMUNIA.

European Commission heads are to consider guidelines for investments by foreign funds in Europe, said Monetary Affairs Commissioner Joaquin Almunia on 29 November. Speaking at a lunch meeting organised by Europolitics and the European Training Institute, Commissioner Almunia said that investment by sovereign wealth funds was a "very important issue" and that EU commissioners would discuss possible guidelines at their regular meeting this week.

Such funds are owned by foreign state governments and represent the huge wells of cash held by the Middle Eastern states and China, holding over $2 trillion worth of assets. Europe needs such investment, continued Almunia, but care must be taken to ensure that there is no underlying political agenda.

The key questions on such funds, he said, relate to their transparency, their proper governance and whether the states they represent operate a policy of reciprocity. However, Europe needs to be careful in imposing restrictions on investment from outside the EU, as any rules, if not very carefully formulated, could have consequences within Europe itself.

The commissioner's comments come at a time when foreign investment in major financial institutions is much in the news. Just a few days ago, on 26 November, the Abu Dhabi investment authority contributed US$7.5 billion to the leaky coffers of the beleaguered US investment bank Citigroup in return for a 4.9% stake. Also this week, a major Chinese insurance company, Ping An, acquired a 4.2% stake in Belgium's biggest bank, Fortis. Also in the running is China Investment Corporation, which has openly said that it will look to buy stocks hit by the US subprime crisis, with a view to becoming a "stabilising force in the international capital markets". Indeed, the current crisis in western financial markets may be the perfect opportunity for Middle Eastern and Asian sovereign wealth funds to step in to the breach. Overall, analysts estimate that more than US$37 billion have been invested by sovereign wealth funds in financial institutions since April this year.

The US, which already has strict rules on foreign investment in its home market, is currently updating its laws in the light of a major row in 2006 when Dubai Ports World, owned by the government of Dubai, attempted to purchase six US ports. The deal fell through after Congress voted to block it on the grounds of national security. Many in Europe see the US system as a model to follow, but the change in the US law could, if not clarified, result in the most innocuous of foreign takeover bids for American companies (or even foreign firms with a US subsidiary) being subjected to burdensome scrutiny by the Committee on Foreign Investment in the US (CFIUS). This is surely not a route that ought to be followed in a Europe which, as Commissioner Almunia stressed, should strive against protectionism.

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Publication:European Report
Date:Dec 3, 2007
Words:473
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