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Juergen Stark, ECB - European Financial Stability Facility EFSF Could Buy Bonds

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The euro zone's rescue fund could recapitalize banks or buy government bonds, European Central Bank Executive Board member Juergen Stark was quoted as saying on Saturday. Europe is discussing ways to beef up the European Financial Stability Facility (EFSF), which has a headline value of 440 billion euros ($595 billion) but an effective lending capacity estimated at just 225 billion euros because of the need to secure a triple-A credit rating.

"I could imagine the EFSF recapitalizing banks or buying sovereign debt", Stark told Dutch daily Het Financieele Dagblad. "But this issue has to be decided at the political level," he added.

The ECB has itself bought government bonds in the secondary market since May and has so far spent 76.5 billion euros under the program — amounts that Stark said are small in comparison to what other major central banks have spent on asset purchase programs. Stark's fellow ECB policymaker, Cyprus's Athanasios Orphanides, said on Monday that allowing the EFSF to buy bonds would be useful, adding that this could mean the ECB would not need to buy government bonds any more. Stark also said an increase in the rescue fund's capacity ECB President Jean-Claude Trichet has called for would be to make the headline 440 billion euros fully available.

The other option brought up by Stark, recapitalizing banks, would help the ECB end its extra liquidity measures. Banks in debt-strained euro zone countries remain locked out of lending markets and have become reliant on the ECB for funding, hindering its exit from crisis-fighting measures. Trichet said last week the issue was complex and the ECB is examining it on an ongoing basis, but he did not mention which options the central bank was studying. Stark also told the newspaper joint euro zone bonds were a bad idea – they would blur responsibilities for public finances, but fail to solve economic problems.


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