01/22/2011 12:14 pm ET Updated Dec 06, 2017

Euro Zone Could Buy Back Strapped Countries' Debt

(Reuters) - European leaders should not shy away from a proposal to buy back the bonds of troubled euro member states but should not rely too much on rich countries, Eurogroup Chief Jean-Claude Juncker said.

"It would be wrong to create taboos but we cannot overstretch the strong countries," Juncker said in an interview with German magazine Der Spiegel seen by Reuters on Saturday ahead of publication.

A source told Reuters on Thursday that euro zone ministers are considering whether the bloc's rescue fund could buy back bonds of debt-ridden states, a plan Portugal said it supported.

Der Spiegel magazine also reported in an unsourced report that the idea of a buy-back, which it said was first raised by the European rescue fund's chief Klaus Regling, had been greeted with sympathy by euro zone finance ministers this week.

Without citing any sources, Der Spiegel said Regling's suggestion stood good chances of becoming reality.

"The measure has good prospects of being signed off as part of a comprehensive package to stabilize the euro zone at the European Council in March," it said in a pre-publication release.

It also cited an unnamed high-ranking German finance ministry source as saying this was a good idea, running counter to official German denials this week.

"I wouldn't know of anyone in the Finance Ministry who would have said that," a spokesman for the ministry told Reuters, declining to comment on the Der Spiegel report.

Greece and Germany have insisted Greece, the first to succumb in the currency bloc's debt crisis, needed no help with debt repayments.

A spokesman for EFSF's Regling declined comment but referred to an interview earlier this week in which he said Greece did not need a restructuring of debt, while the Greek finance ministry again denied there have been any discussions on restructuring.


Greece wants to stretch out repayment of the emergency funding it is getting from the IMF and its euro zone peers but is not in talks to restructure its debt, its deputy finance minister reiterated on Friday.

Under the proposal being discussed, the EFSF would be able to conduct buy-back operations of bonds of a distressed country, which could help stabilize its debt market, Reuters sources have said.

For this to be feasible, the fund would need to be beefed up to be able to actually lend out its full headline value of 440 billion euros ($375 billion), a move Juncker backed in his interview with Der Spiegel.

Currently only about 225 billion euros are effectively available because of the need to secure a triple-A credit rating.

Der Spiegel said bondholders would be paid, for example, a five percentage point premium for the bonds that Greece would buy back from them. The EFSF would secure this deal, the acceptance of which would be voluntary for creditors, the magazine said.

(Reporting by Annika Breidthardt; Additional reporting by Michael Nienaber in Berlin, Ilona Wissenbach in Brussels and Renee Maltezou in Athens; Editing by Toby Chopra)

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