FRENCH Finance Minister Christine Lagarde has warned bankers to stop lobbying the European Union to permit its bailout fund to buy back bonds of indebted members.
Speaking in Davos, Ms Lagarde said this was a job for finance ministers rather than bankers and advisers. Her comments follow those of European Central Bank president Jean-Claude Trichet who said it may be "useful" for the €440bn European Financial Stability Facility to buy government bonds to help ease tensions in financial markets. Deutsche Bank chief Josef Ackermann said that he also supports the idea.
The European Financial Stability Facility (EFSF) is the main part of a €750bn financial backstop created in May to stop the spread of Europe's debt crisis after Greece accepted a €110bn-euro bailout. EU leaders are debating how to expand the fund's mandate at a summit meeting in March after the backstop failed to stop contagion spreading to Ireland. That has also sparked a jump in the borrowing costs of Spain and Portugal. "We are discussing it at the moment," Ms Lagarde said. "I don't think there is a general consensus yet, but it is one avenue for the stability fund to get involved in markets."
Finance ministers are also considering allowing the fund to re-capitalise distressed banks and may also increase the size of the aid mechanism. EU leaders are committed to making the fund more "efficient and flexible" and if it needed to be enlarged, "so be it", she said.
EFSF bond purchases would take pressure off the ECB, which Mr Trichet pushed to start buying Greek, Portuguese, Irish and Spanish debt in May to restore order to bond markets. Greece's debt will reach 150pc of economic output this year, with Spain's rising to almost 70pc and Portugal's hitting 90pc. (Bloomberg)