Mon, Jul 18, 2011 - Page 10 News List

EFSF should buy bonds on secondary market: Bini Smaghi


The European Central Bank (ECB) renewed its call for politicians to empower Europe’s rescue fund to buy government bonds on the secondary market.

ECB executive board member Lorenzo Bini Smaghi said in an interview with Greece’s To Vima newspaper that it would be “useful” to allow the European Financial Stability Facility (EFSF) to buy bonds on the open market, according to a transcript published by the Frankfurt-based ECB yesterday.

“This would allow the private sector to sell bonds at their market value, which is currently lower than the nominal value,” Bini Smaghi said. “This would allow the private sector to sell while the public sector would save money. Such an option was not included in the design of the EFSF. If there is a way to change the EFSF, that would be useful.”

European leaders in March declined to authorize the facility to purchase bonds on the secondary market — a role the ECB assumed last year as the Greek debt crisis escalated.

Bini Smaghi said the onus remains on Greece to pursue its fiscal consolidation program. He also encouraged Greek banks to sell foreign assets.

“The Greek banks have to sell some assets abroad, get fresh money in the system to be able to contribute to the recovery, do mergers even with foreign banks to bring in foreign capital,” he said. “If you consider the fully hypothetical situation in which all Greek banks were owned by foreign capital, as was the case in eastern Europe, then a lot of problems in Greece would be eased.”

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