Merkel dismisses debt buying rescue scheme

Julian Harris
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GERMAN Chancellor Angela Merkel yesterday shot down reports that Eurozone leaders at the G20 are planning for rescue funds to snap up the debt of distressed member states such as Italy and Spain.

Yet later in the day the idea appeared to gain support from a senior official at the European Central Bank (ECB) who said that the existing bailout fund, the European Financial Stability Facility (EFSF), should already be buying bonds.

“Certainly it’s a mystery why the EFSF was allowed almost a year ago to undertake secondary market interventions and governments have not yet chosen to use that possibility,” Benoit Coeure told the Financial Times.

Yet Coeure rejected the idea that the ECB should again gear up its Securities Markets Programme (SMP) to purchase debt. “We do not consider that the SMP would be the best instrument to use at the current juncture,” he said.

The ECB has not bought any debt for three months.

Merkel yesterday denied that leaders were discussing the use of the EFSF and the planned European Stability Mechanism (ESM) for buying debt to bring down borrowing costs for troubled governments.

“I have not heard anything about this,” she said in a news conference. “It is true that both the EFSF and the ESM include the possibility of buying bonds in the secondary market, but this is not in discussion at the moment,” Merkel added.

“I know of no concrete plans. The possibility exists of buying bonds with the EFSF and ESM, always with conditionality, but it is a purely theoretical issue regarding the treaty,” she said, praising Spain, Portugal and Italy for their efforts to reform their economies.

On Tuesday night European officials had briefed that measures to reduce borrowing costs were being agreed by Eurozone chiefs at the G20 meeting in Mexico, with Italy pushing the idea of bailout funds buying up debt.

Merkel, who appears to be rebuffing the plan, also revealed yesterday that she will attend Friday’s Euro 2012 quarter final against Greece, despite political tensions between the countries.