EU ‘mulls Italy bond-buying’ by rescue fund

October 24, 2011 7:33 AM1 commentViews: 13

EU 'mulls Italy bond-buying' by rescue fund

European officials are mulling using a eurozone rescue fund to buy Italian government bonds in a bid to relieve pressure on the debt-stricken nation, an EU diplomat told AFP on Monday.

A plan for the European Financial Stability Facility (EFSF) to take over the bond-buying role of the European Central Bank is being worked on by top eurozone officials.

“Clearly there are people within this forum who are wondering if it isn’t time to put this plan to Italy,” the diplomat said on condition of anonymity.

Italian Prime Minister Silvio Berlusconi called an emergency cabinet meeting on Monday to review new austerity measures after EU leaders pressed him to fulfill pledges to cut Italy’s huge debt at a series of weekend meetings.

The government in Rome is trying to pilot through a raft of EU-ordered reforms ahead of another summit in Brussels on Wednesday, where European leaders are trying to come up with a comprehensive response to the debt crisis to take to worried G20 partners when they meet in France on November 3-4.

Another official said the plan should not be compared to the bailouts agreed for three other eurozone nations over the past year.

“It’s not a fully-fledged macro-economic adjustment programme, as is the case with Greece, Ireland and Portugal,” the official said.

In a bid to bring down Rome’s borrowing costs, the ECB bought billions of Italian bonds in August when markets pushed yields up to the sort of unsustainable levels that triggered the Greek and other bailouts last year.

Before the summit at the weekend, the Italian premier held one-on-one talks with EU president Herman Van Rompuy and another meeting with German Chancellor Angela Merkel and French President Nicolas Sarkozy.

But the second official insisted he was “not aware of a decision to activate having been taken” during those talks.

Changes to the 440-billion-euro EFSF allow it to buy bonds of stressed eurozone governments is one of several options being discussed in order to hold the line on eurozone borrowing costs and allow weaker member states some breathing room to stabilise their public finances.

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