(Bloomberg) -- European Union bonds could pose a threat to Dutch bonds if they are reclassified as sovereign securities by index providers, said the head of the nation’s treasury agency.
The government would prefer it if EU bonds continue to be treated as supranational debt, Saskia van Dun, head of the Dutch State Treasury Agency, said in an interview with Bloomberg, thereby avoiding any competition with bonds sold by member states.
The EU has been advocating for its bonds to be treated as government debt so that it can access a wider pool of investors. Officials have said that would help lower borrowing costs, which remain higher than the Netherlands’ despite having the same credit rating.
“I know that the Dutch government is not in favor of this development, but on the other hand, the question is whether you can withhold it,” said Van Dun. “We don’t mind if it stays that way.”
Her comments are a rare public interjection into the debate from a European government official, who added that reclassifying the bonds would still be a positive development from a social point of view.
“For us as the treasury agency, it could be a threat,” Van Dun said. “But you could also cooperate and work together as debt management agencies; and that is, I personally think, the way forward in the end.”
So far, the EU’s attempts to reclassify its debt have proved unsuccessful, with MSCI Inc., Intercontinental Exchange Inc. and S&P Global all rejecting such proposals after consultations. However, it’s likely they will revisit the question in the coming years.
Bloomberg Index Services Limited has also consulted on the EU’s status. It is a subsidiary of Bloomberg LP, the parent of Bloomberg News.
Tennet Loan
The Dutch treasury needs to finance an estimated borrowing requirement of €105 billion ($110 billion) for the year, according to plans published Friday. The shortfall is significantly higher than this year’s €70.7 billion.
That’s mostly because of a loan facility for Tennet Holding BV said Van Dun, referring to a bridge loan the Dutch government has extended to the grid operator. The financing makes up €14.2 billion of its estimated cash deficit in 2025.
Despite the higher financing requirement, bond issuance plans are steady at €40 billion, with the rest coming from money markets.
In September, the Dutch government said it would lend the capital-strapped grid operator another €19 billion after talks with Berlin over a sale of its German network failed. The financing came on top of the €25 billion loan it provided in January for its much needed grid investments this year and in 2025.
Political Uncertainty
Van Dun indicated the treasury’s plans wouldn’t be affected by political turmoil. Last month, the Dutch coalition led by far-right lawmaker Geert Wilders’ Freedom Party came close to collapsing after a secretary resigned in protest over alleged racist comments.
“If this cabinet would fall, I think the discipline and the prudent debt management will survive,” she said.
The new coalition took office in July as the most right-leaning Dutch government in decades, pushing for the strictest-ever immigration policies. But unlike in other countries, the management of the Dutch treasury isn’t affected by changes in the government, Van Dun said.
“We can do our job,” she said. “We just have to make sure that the Netherlands can pay its bills every day.”
--With assistance from Greg Ritchie.
(Updates with details from the interview from 13th paragraph.)
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