Oct. 27 (Bloomberg) --The enlarged euro-area rescue fund is still “too small” to restore confidence as it would not be able to match the European Central Bank’s bond buying program, Royal Bank of Scotland Group Plc said.
European leaders agreed at a summit in Brussels yesterday to boost the European Financial Stability Facility’s capacity to 1 trillion euros ($1.4 trillion). Under plans to be spelled out in November, the fund will be used to insure bond sales and to create a special investment vehicle to court outside money, from public and private financial institutions and investors.
“This is no doubt a large sum but too small in our view to restore confidence for good,” Harvinder Sian, a strategist at RBS in London, wrote in an investor report today. If the fund “was to continue buying Italian and Spanish bonds at the same pace as that of the ECB, this would give only two years of purchasing power, assuming no other country would require help from the EFSF,” he wrote.
There are “no convincing arguments in this new policy response to suggest that sovereign bond spreads in the euro area will tighten meaningfully,” he wrote.
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