Tags: France Pushes for Bond Buybacks to Stem Crisis in Split With Germany

France Pushes for Bond Buybacks to Stem Crisis in Split With Germany

Thursday, 03 Feb 2011 09:41 AM

France called for the use of bond buybacks to stem the European debt crisis, splitting with Germany on the eve of a summit meant to project a unified stance on quelling market turmoil.

France favors maximum flexibility for Europe’s 440 billion euro ($606 billion) rescue fund, such as using it to enable debt-strapped countries to buy up their own bonds at a discount, a French official told reporters in Paris today on condition of anonymity.

The fund “needs force and flexibility,” French Finance Minister Christine Lagarde said at a separate briefing. “That doesn’t necessarily mean increasing it. It needs to be efficient.”

German opposition to buybacks, which would pare the debt burden of countries like Greece, reflects the differences between the euro region’s two principal economic powers over how to stamp out the year-old fiscal crisis and put the euro on a sounder footing.

European leaders will review the crisis-fighting strategy at a summit tomorrow in Brussels, recommitting to a March 25 target to strengthen the bailout fund, set up a permanent rescue mechanism and enact new rules against budgetary bungling.

The euro and Spanish and Portuguese bonds slipped after Spain sold 3.5 billion euros ($4.8 billion) of debt, below the maximum target set for the auction. The French-German tensions also damped investor confidence that Europe is closing in on an anti-crisis formula.

Crisis Formula

While direct purchases of distressed countries’ bonds in the primary market will be part of the upgraded toolkit, other pieces — such as Ireland’s plea for lower interest rates on aid — have yet to fall into place.

France and Germany agree on the goal of extracting the full potential from the European Financial Stability Facility, its actual lending limited by collateral rules to about 250 billion euros.

Germany, the biggest of the 17 euro nations, is tying its approval of a strengthened safety net to a toughening of controls on budget deficits that have gone unenforced since the euro’s debut in 1999.

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France called for the use of bond buybacks to stem the European debt crisis, splitting with Germany on the eve of a summit meant to project a unified stance on quelling market turmoil.France favors maximum flexibility for Europe s 440 billion euro ($606 billion) rescue...
France Pushes for Bond Buybacks to Stem Crisis in Split With Germany
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