Debt crisis: bond buying plan to ease euro debts only ‘theoretical’ says Angela Merkel

The German Chancellor agreed that the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) had the “possibility of buying bonds” but said no discussions were being held about such a move.
Her comments came as a top European Central Bank policymaker publicly backed the idea. Benoît Cœuré said that the action could ease the “very severe strain” on Spain and Italy.

“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,” reports the Telegraph.

François Hollande, the French president, told reporters that the idea had been raised at the G20 meeting in Mexico and would be discussed at tomorrow’s summit of Europe’s big four nations – Italy, Germany, France and Spain.

“Italy has floated an idea which deserves consideration, we’ll speak about it at Rome,” said Mr Hollande. “We are looking for ways to use the ESM for this. At the moment it is just an idea, not a decision. It is part of the discussion,” he said.

In Mexico, Christine Lagarde, managing director of the IMF, declared that “the seeds of a pan-European recovery plan were planted”. However, the European Commission said the plan was little more than “financial paracetamol”.

Amadeu Altafaj, an EC spokesman, said unleashing the bail-out funds could “soothe tension, pain and malaise but it does not heal the root causes, the structural problems of the economies of Italy, Spain and others.”

However, Mrs Merkel appeared to crush hopes of a breakthrough. “It is true that both the EFSF and the ESM do include the possibility of buying bonds in the secondary market, but this is not in discussion at the moment,” she said.
None the less, Spanish bond yields fell by their biggest margin this year as traders reacted with relief to the suggestion that the bail-out funds could be deployed.