European Governments Weigh Bond Buybacks

Wall Street Journal
January 21, 2011

European governments are considering ways to reduce the debt burdens of struggling euro-zone countries such as Greece through bond buybacks, as part of broader measures aimed at ending the crisis of confidence in Europe's common currency.

The buyback ideas being discussed would allow Greece or other indebted countries to borrow money from Europe's bailout fund, and use it to buy up their own bonds at depressed prices from investors or from the European Central Bank, said senior European officials.

Such buybacks would allow countries to reduce their total debt burdens by paying less than the face value of their bonds. Officials say the trades' voluntary nature would avoid unsettling investors with debt defaults or a forced restructuring of bonds. Debt buybacks could be an "elegant" way to help the euro's weakest members repair their finances, European officials said.

But agreement on the idea, and on other proposals to boost the bailout fund's firepower and increase its flexibility, depends on indebted countries offering something to Germany and other financially strong countries in return, these officials said. If the bond-buying idea is agreed upon, it may not come into effect immediately, they said.

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