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Portfolio > ETFs > Broad Market

IMF Considers Bond Buyback for Europe

By John Sullivan

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The International Monetary Fund is considering bold action to aid the eurozone, floating the possibility of a bond-buying proposal on Wednesday.

The Wall Street Journal reports Antonio Borges, a senior IMF official, said the International Monetary Fund could create a special financing tool to buy bonds in private markets as a way to help stem the eurozone’s debt crisis. However, Borges added that the idea hadn’t yet been vetted by the fund’s membership and there have been no formal requests from eurozone members for additional financing.

“Such a plan could aid countries such as Spain and Italy which face rising costs for financing in capital markets,” according to The Journal. “Borges said these countries have a problem of market confidence rather than solvency. IMF bond-buying interventions could help solve that problem. The IMF’s involvement in eurozone secondary bond market purchases would give an ‘additional element of credibility because of the conditionality the IMF requires,’ he said.”

The paper notes shortly after the IMF’s top Europe official made the comments at a news conference in Brussels, IMF headquarters in Washington issued a clarification from Borges. “We do not have any additional requests for support from European members, and we are not contemplating any market involvement with the EFSF,” he said in a statement. The European Financial Stability Facility, or EFSF, is the eurozone’s €440 billion ($580 billion) bailout fund.

“Economists and market participants have said Europe’s bailout fund may not be powerful enough to tackle the massive debt requirements of Italy and Spain, two of the eurozone’s biggest economies,” according to the report. “Earlier this year, eurozone leaders agreed to expand the bailout fund’s financing capacity and to allow it to buy bonds in private markets. All national parliaments have agreed, except Slovakia and the Netherlands; those two countries are expected to approve the terms later this month. Currently, only the European Central Bank can intervene in secondary bond markets.”

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