Financial Times
October 23, 2011
European leaders are looking at a new facility to buy Italian and Spanish bonds which could include money from the International Monetary Fund and other non-European investors as a way of supplementing the eurozone’s own €440bn ($611bn) rescue scheme.
The creation of the new special-purpose vehicle (SPV) is one of two options under consideration to beef up the rescue fund, which officials have agreed is too small to fend off panicked selling of Italian bonds that may ensue if investors are forced to take a bigger write-down on Greek debt.
A senior official involved in the talks said both the SPV and a second option – guaranteeing losses on as much as 20 per cent on Italian bonds – could run in parallel, giving the eurozone more tools to fight off market contagion.
“It may well be we retain both instruments in the arsenal to have some flexibility,” said the official, who noted legal restrictions in some countries may make one scheme more attractive than others.
Expanding the firepower of the fund, the European financial stability facility, remained the last and most contentious part of the EU’s three-part plan to restore confidence.
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