Germany Set To Allow Eurozone Bailout Fund To Buy Troubled Countries’ Debt

June 19, 2012 | By
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Barack Obama and Angela Merkel at the G20 summit in Los Cabos. Photograph: Ulises Ruiz Basurto/EPA

Angela Merkel is poised to allow the eurozone’s €750bn (£605bn) bailout fund to buy up the bonds of crisis-hit governments in a desperate effort to drive down borrowing costs for Spain and Italy and prevent the single currency from imploding.

Germany has long opposed allowing the eurozone’s rescue fund, the European Financial Stability Facility, to lend directly to troubled eurozone countries, fearing that Berlin would end up paying the bill, and the beneficiaries would escape the strict conditions imposed on Greece, Portugal and Ireland.

But Merkel has come under intense pressure as financial markets have pushed up borrowing costs for Spain to levels that many analysts see as unsustainable.

Analysts are likely to see the decision as the first step towards sharing the burden of troubled countries’ debts across the single currency’s 17 members, though it falls short of the collective loans or “eurobonds” proposed by the European commission president, José Manuel Barroso.

A spokeswoman for Merkel said: “Nothing has been decided yet.”

The proposal was discussed on the margins of the two-day G20 summit in Los Cabos, Mexico, which has been dominated by the depressing impact of the eurozone crisis on the world economy.

G20 officials believe an announcement could be made by the leaders of the eurozone in the next few days, but stressed they remained unclear as to timing and precise content.

A White House official confirmed the eurozone is working on a plan to unveil at next week’s summit, and suggested Barack Obama had been advising on the deal. The official said: “The framework they are building, as they described it to us, amounts to a more forceful response than they’ve contemplated to date.”

Read the whole story:  the guardian

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