Buying bonds is the way forward
The speed with which IMF Europe director Antonio Borges backtracked on his suggestion that the organisation should buy the bonds of peripheral eurozone countries such as Italy, Spain and perhaps Ireland, does not detract from the need for some sort of mechanism to reduce their debt burdens short of a formal default.
With a Greek debt default, which could see that country's bondholders suffer a 50pc-plus "haircut", now virtually inevitable, the challenge facing the EU, the ECB and the IMF is to devise a strategy to confine the impact to just one country. If Greece can go bust, why not Italy, Spain, Portugal or Ireland also?
Since last July the ECB has been buying Spanish and Italian bonds. The hope is that, when the Slovakian parliament finally gets around to approving the July 21 deal between EU leaders, the EFSF, aka the EU bailout fund, will take over these bond purchases.