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ECB Backs Guarantee Option to Leverage Europe’s Bailout Fund

BusinessWeek - Oct 10, 2011

The European Central Bank says the firepower of Europe’s bailout fund should be magnified through the use of government guarantees rather than the central bank’s money market operations.

The ECB says governments should use the 440-billion-euro ($603 billion) European Financial Stability Facility to insure a portion of new bonds issued by debt-strapped nations. That would leverage the amount available to protect member states from the region’s debt crisis.

EFSF resources “should be dedicated to enhance sovereign debt new issuance of securities, thus multiplying their effect,” ECB Vice President Vitor Constancio said in a speech in Milan today.

Policy makers are trying to build a “firewall” around large European countries like Italy and Spain whose size would make them difficult to rescue if their debt became unsustainable. ECB President Jean-Claude Trichet opposes suggestions that the central bank should lend to the EFSF to boost its capacity, saying such a move would not be “appropriate.”

Read Full Article from BusinessWeek

- Posted: 2011-10-10 13:33:23

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