BRUSSELS (MNI) – Eurozone finance ministers are not planning to
discuss deploying the currency bloc’s bailout funds to purchase Spanish
and Italian bonds to bring down those governments’ borrowing costs, a
spokesman for the European Commission said on Wednesday.

There is “no plan as such” nor any “formal request” for the
European Financial Stability Facility to intervene, a Commission
spokesman said, playing down reports in the British press that European
leaders were poised to agree to use the bloc’s bailout funds to help
Spain and Italy.

A German government spokesman said Wednesday that for the EFSF or
its permanent successor, the European Stability Mechanism, to buy bonds
of a member state on the secondary markets, the state would have to
apply formally for such aid and accept the conditions tied to it.

Group of 20 leaders said in a communique issued Tuesday that the
Eurozone members of the group had committed to driving down borrowing
costs across the single currency area.

EU leaders last November authorized the EFSF to purchase government
bonds in secondary markets to help countries under speculative attack
but such intervention is subject to conditions, including an analysis by
the European Central Bank demonstrating the existence of “exceptional
financial circumstances” that pose “risks to financial stability”, the
bailout fund’s guidelines show.

Countries must also formally request the intervention of the EFSF
and agree to “appropriate policy reform efforts”.

In order to qualify for the assistance, countries making a formal
request must also have “a sustainable public debt” and a “sustainable
external position” and be able to demonstrate commitment to bringing
economic imbalances under control.

According to the guidelines, countries requesting intervention
must also have “an absence of bank solvency problems that would pose
systemic threats to the euro area banking system stability.”

While this condition could be seen as complicating an application
from Spain, if one were ever to be made, a spokesman for the Commission
said that aid from the EFSF to recapitalize banks and secondary market
intervention could go hand in hand.

Although secondary market intervention to bring down borrowing
costs could be useful, it was not a solution to the problem, the
spokesman said.

“We are talking about instruments that could calm markets for a
time but do nothing to address the nervousness or doubt on the
market,” he said.

Such “financial paracetamol may alleviate the tension, the pain,
the unease, but it does not address the causes,” he said.

Madrid has never hinted that it might make such a request but
Italy’s Prime Minister Mario Monti, has on several occasions said that
markets were not fairly pricing Italian debt and called for intervention
by the European Central Bank.

–Brussels newsroom: +324-9522-8374; pkoh@marketnews.com

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