Sovereign funds ‘not all bad’

The European Union must avoid reverting to protectionism in its response to concerns about foreign state-owned investment funds, Charlie McCreevy, the internal market commissioner has warned.

"There are certain aspects of sovereign wealth funds that need to be addressed …But in raising these issues we must avoid them being used to foment protectionist sentiments," he told a meeting of MEPs on so-called sovereign wealth funds on Tuesday (4 December). The commissioner said that the rise of the funds, helped by high energy prices and trade surpluses, was a "by-product of increasing globalisation and the benefits of international trade" which should not be used "as an argument against the entry of emerging markets investors into the First World corporate sector".

McCreevy said that Europe "must remain an attractive place for investment". Without continued inward investment Europe’s economy would stagnate, he warned.

McCreevy said that one should not "lump all wealth funds in the same basket", pointing out that they included long-standing and respected funds like the Kuwait Investment Authority and Singapore’s Temasek. There was, however, a need for clarity over issues such as trans-parency and governance. He highlighted Norway’s pension fund as "a good benchmark". He reminded the audience that member states retained the right under EU treaty rules to restrict access to their markets if they had legitimate security concerns. This would apply for all investments including sovereign wealth funds, state-owned companies or private companies. This was especially true in the defence sector, he said. The Commission and the European Court of Justice would then decide whether such restrictions on investment were justified.

McCreevy said that such funds should be transp-arent, "preferably on the basis of an international code of best practice".

His comments were followed by a debate at the college of European commissioners the following day (5 Decem-ber). A number of EU member states are considering introducing measures to control investment by state-owned funds amid increasing fears that foreign governments could be gaining influence over strategic assets like defence and transport industries. Germany is most far advanced, with draft legislation currently being drawn up by the government.

A spokesman for European Commission President José Manuel Barroso said that there was agreement on the need for a common approach to sovereign funds and that the debate had "emphas-ised the need to avoid all forms of protectionism". He added that the Commission did not favour legislative action at this stage but considered that "some ground rules or guidelines on governance and transparency could be useful". The Commission would set out a detailed position in the first half of 2008, he said.

The European Union must avoid reverting to protectionism in its response to concerns about foreign state-owned investment funds, Charlie McCreevy, the internal market commissioner has warned.