Wall Street Journal
September 26, 2011
“Leverage” was the talk of the town in Washington over the weekend, and for once it wasn’t a dirty word.
U.S. Treasury Secretary Timothy Geithner implored his European brethren to use leverage to beef up the European Financial Stability Facility.
Mr. Geithner brought the same message to a European finance ministers’ meeting in Poland 10 days ago, and he was firmly rebuffed. There was opposition from the usual trio of strong northern European countries (Germany, the Netherlands and Finland), but perhaps most crucially from the European Central Bank.
But can the bailout fund be leveraged without the ECB?
Maybe.
It’s an idea that’s making the rounds. The general notion is straightforward: The newly enhanced EFSF will be able to buy bonds both on the secondary market and directly from governments in auctions. (Right now, the EFSF makes loans to governments.)
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