The cost of insuring Italian and Spanish government bonds against default has risen after Germany’s finance minister Wolfgang Schaeuble, added to investor doubts on the scope of the EU’s rescue fund.
Schaeuble said that only in exceptional circumstances should the European Financial Stability Facility purchase bonds in the secondary market – that is from investors rather than direct from governments.
Schaeuble said one summit would not be enough to solve the euro zone’s problems but the agreed measures could prevent Greece’s debt woes from becoming “a crisis that would endanger the euro zone as a whole, and therefore the euro”.
His comments pointed to obstacles to intervention by the European Financial Stability Facility, which may limit its ability to prevent contagion to bigger economies such as Spain and Italy.
At the same time Greek Prime Minister George Papandreou told lawmakers told his Pasok socialist party that debt-stricken Athens will effectively receive the first joint eurobonds in the form of loans at close to cost price from the euro zone’s rescue fund.
“The decision of our European partners to lend us at 3.5 percent, an interest rate just above the one at which Germany itself is borrowing, is in essence tantamount to introducing a European bond, regardless of the fact that this system has not been completed yet,” he said.
His comments may inflame critics of euro zone bailouts in Germany and other northern European countries, who vehemently oppose any mutualisation of fiscal risk in the 17-nation single currency area.