EIB aims to instil bond market faith in single currency

Date: 28/03/1996

THE European Commission has yet to announce how it intends to promote the single currency among bankers, industry and the public.

But in a little-noticed move last week, the European Investment Bank (EIB) did its bit for the campaign.

When it issued a five-year 500-million-ecu bond, the bank released a prospectus promising to repay its creditors in euro once the single currency area is created.

At a stroke, the EIB gave reality to what had, up to that point, been a mere verbal promise made by EU heads of state and government at the Madrid summit in December.

There, they pledged that the Ecu - which is merely a 'basket' consisting of a fixed amount of the 12 pre-enlargement EU currencies - would be swapped at one-for-one parity for the new Euro.

Yet the London markets remained nervous, uncertain that this pledge was legally binding and unsure whether borrowers could chose to repay the principle of the debt at maturity in the 12 currencies, which could well be weaker than the Euro.

The EIB, the world's largest issuer of Ecu-denominated debt, felt a message needed to be sent to the markets.

The new bond expires on 14 April 2001. “We said that providing the Euro is in place, we will repay the Ecu loan in a one-for-one basis in euro,” said an EIB capital markets expert.

“The Ecu is our home currency,” he added. “We believe in the Ecu and in the single European currency, and we thought we should give a signal to the market.”

The EIB's activity will not end there, since investors are keen to replace ecu securities in their portfolios this year, when a large number of bonds are due for redemption. All of them will contain the 'Euro clause', a promise also made by the French Treasury.