Date November 29 , 2011
The 17-nation eurozone plans to use its bailout fund to insure bonds.
The 17-nation eurozone plans to use its bailout fund to insure bonds from financially troubled countries within the bloc by up to 30 percent, according to a new proposal.
According to draft guidelines, bonds being issued in the future would receive fixed credit protection equal to 20 to 30 percent through the European Financial Stability Facility. The actual rate will be determined "in light of market circumstances."
The guidelines said the the main objective is to allow member states to issue bonds "at sustainable rates maximizing EFSF capacity while providing a predefined degree of protection to investors." They were approved by the German Parliament s budget committee on Monday.
The guidelines have been drawn up to increase the firepower of the bloc s €440 billion ($588 billion) rescue fund and prevent crisis situations in the future.
"It is important that the resources available are sizable enough to counter doubts that the country has sufficient funds to meet its financing needs and to give market confidence," the guidelines state. "However, the tool should not merely be seen as a liquidity facility but as an effective and comprehensive crisis prevention tool."
Despite market rumors that the bailout fund might fall short of the €1 trillion ($1.3 trillion) goal it hoped to reach through leveraging, the German government still believes it to be a reachable target, according to a German lawmaker, speaking on condition of anonymity because of the sensitivity of the issue.
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