The eurozone’s bailout fund has said it will stop issuing bonds governed by English law, in the latest sign that Brexit is chipping away at the UK’s status as a key jurisdiction for international financing.
The European Stability Mechanism, set up in 2012 to provide loans to financially distressed eurozone member countries, told investors on Thursday it was switching to Luxembourg law for its future borrowing starting from October 1.
“This shift was triggered by Brexit, which started a discussion about the future legal basis we want to issue under,” said Kalin Anev Janse, chief financial officer at the Luxembourg-based fund. “As one of the largest euro-denominated issuers, we would like to be part of the EU legal framework.”
The ESM is a big player in eurozone bond markets. It is on track to issue €9.8bn of bonds this year and has more than €100bn of outstanding debt. The fund, backed by all eurozone states, has provided more than €60bn of bailout loans to Greece. Some advocates of closer eurozone integration have argued its supranational status means its bonds could one day become a benchmark safe asset for the currency bloc as a whole.
Countries and companies selling bonds have long favoured the English legal system as a neutral venue to swiftly and predictably resolve any disputes that arise when debts are restructured. This perception, along with London’s position as a financial centre, have bolstered the City’s status as a global hub for legal services. [...]
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