FRANKFURT (MNI) – The European Financial Stability Facility (EFSF)
should be able to buy government bonds in the secondary market, European
Central Bank Governing Council member Lorenzo Bini Smaghi said in an
interview with Greece’s To Vima newspaper released over the weekend.

“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. But 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.”

In a separate interview released Sunday, ECB President Jean-Claude
Trichet said that “the European Financial Stability Facility (EFSF)
should be used as flexibly and effectively as it possibly can be.”

At last week’s Eurogroup meeting, finance minister said they had
decided to enhance “the flexibility and the scope of the EFSF.” However,
their statement did not specify whether this flexibility would include
the ability to buy bonds on the secondary market.

Both Bini Smaghi and Trichet argued against the introduction of
Eurobonds to overcome the crisis, as has been suggested by some Eurozone
governments.

“I believe that in the current situation, where there is a problem
of trust, especially between the creditors and the debtors, blurring
responsibilities would be problematic. I am not sure Eurobonds could be
an easy way out of this crisis,” Bini Smaghi said.

Bini Smaghi once again warned that “the participation of the
private sector in any solution must be absolutely voluntary and that the
markets can get in and out” so as prevent the crisis from spreading
further.

The Executive Board member called on Greek banks to sell some of
their foreign assets to help the economic recovery of the country.

“The banking sector is crucial for the development of the Greek
economy,” Bini Smaghi said. “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.”

Bini Smaghi has been one of the most outspoken critics of any form
of Greek debt restructuring, let alone a Greek exit from the Eurozone.
But for the first time he appeared to allow for that possibility.

Asked whether he is worried about the viability of the euro as a
currency, Bini Smaghi said: “The Greeks for example want to stay in the
euro but for this to happen they have to put their house in order. They
have to face reality.”

–Frankfurt bureau tel.: +49-69-720142. Email: jtreeck@marketnews.com

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