Bloomberg News

Austria Resists EFSF Bond Buying, Sees Risk of Creating Bad Bank

October 04, 2011

Oct. 4 (Bloomberg) -- Austrian Finance Minister Maria Fekter said she’ll resist pressure to use the euro area’s bailout fund to buy bonds in the secondary market, saying such an initiative would risk turning it into a “bad bank.”

“I don’t support this because I don’t want to make the facility into a bad bank,” Fekter said when asked about the possibility in an interview today in Luxembourg, where European Union finance ministers are meeting.

The fund, known as the European Financial Stability Facility, is set to gain the power to purchase euro-area sovereign bonds under the terms of an accord that the region’s governments are trying to ratify by the end of next week.

Fekter’s remarks underline how political concerns may hamper the impact of the EFSF even after it is retooled under the terms agreed by European leaders on July 21.

European stocks fell for a third day and investors shunned riskier countries’ bonds amid concern that the crisis is careering out of control. The euro has dropped about 8 percent since the end of August, trading at $1.3275 as of 4 p.m. in London.

Austria, one of six AAA-rated euro-area countries, would be reluctant to offer further financial support in order to increase the firepower of the EFSF, which has 440 billion euros ($584 billion) to spend in the face of bond-market turmoil, Fekter said.

“I could not support huge amounts from the taxpayer for the EFSF,” she said. This “is not possible to pass national parliaments.” The fund “should be flexible in the operational work and in this flexibility I hope the amount is enough,” she said.

Fekter also said that there is “no consensus” on whether the EFSF should be granted a banking license in an effort to increase its size.

“Some countries support this, some are not happy, we will see if we find a technical solution,” she said. “We have to strengthen the instruments for handling or managing the crisis. The ECB alone is not enough.”

--With assistance from Jonathan Stearns in Brussels. Editors: Andrew Atkinson, Eddie Buckle

To contact the reporters on this story: Mark Deen in Luxembourg or markdeen@bloomberg.net; Nejra Cehic in Luxembourg or ncehic@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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