EUROPEAN LEADERS should not shy away from a proposal to buy back the bonds of troubled euro zone member states but should not rely too much on rich countries, euro group chief Jean-Claude Juncker said.
"It would be wrong to create taboos but we cannot overstretch the strong countries," Mr Juncker said in an interview with German magazine Der Spiegelyesterday.
It has been rumoured for several days that euro zone ministers are considering whether the bloc’s rescue fund could buy back bonds of debt-ridden states, a plan Portugal said it supported.
Der Spiegelmagazine also reported in an unsourced report that the idea of a buyback, which it said was first raised by the European rescue fund's chief Klaus Regling, had been greeted with sympathy by euro zone finance ministers this week.
Der Spiegelsaid Mr Regling's suggestion stood good chances of becoming reality.
“The measure has good prospects of being signed off as part of a comprehensive package to stabilise the euro zone at the European Council in March,” it said.
The magazine also cited an unnamed high-ranking German finance ministry source as saying this was a good idea, running counter to official German denials this week.
“I wouldn’t know of anyone in the finance ministry who would have said that,” a spokesman for the ministry said, declining to comment on the report.
Separately over the weekend, European Central Bank executive board member Juergen Stark said measures to strengthen the region’s rescue fund could include purchases of government bonds or injecting cash into commercial banks.
"I could imagine the recapitalising banks or buying sovereign debt," Mr Stark said in an interview with Dutch newspaper Het Financieele Dagblad.
Greece and Germany have insisted Greece, the first to succumb in the currency bloc’s debt crisis, needed no help with debt repayments.
Any move allowing a bond buyback would have implications for Ireland’s situation too, although most comment to date has focused on Greece.
A spokesman for Mr Regling declined to comment but referred to an interview earlier this week in which he said Greece did not need a restructuring of debt, while the Greek finance ministry again denied there have been any discussions on restructuring.
Greece wants to stretch out repayment of the emergency funding it is getting from the IMF and its euro zone peers but is not in talks to restructure its debt, its deputy finance minister reiterated on Friday.
Under the proposal being discussed, the European stability facility would be able to conduct a buyback of bonds of a distressed country, which could help stabilise its debt market, sources have said.
For this to be feasible, the fund would need to be beefed up to be able to actually lend out its full headline value of €440 billion, a move Mr Juncker backed in his interview with Der Spiegel.
Only about €225 billion is available because of the need to secure a triple-A credit rating. – (Reuters/Bloomberg)
