Mooted ECB bond-buy plan 'problematic': Germany

August 20, 2012 | 17:04

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Germany on Monday poured cold water on a reported plan by the European Central Bank to set a cap on the borrowing costs of debt-wracked eurozone countries, terming it "very problematic."

A giant logo of the Euro currency stands in front of the European Central Bank (ECB) in the banking district of Frankfurt/M., western Germany, on July 31, 2012. (AFP Photo/Daniel Roland)

"Purely theoretically and speaking in the abstract, such an instrument would of course be very problematic but I am not aware of any plans in this direction," said Martin Kotthaus, a spokesman for Germany's finance ministry.

"You know that we basically do not comment on the ECB, which is an independent institution, but I can still say that I do not know about these plans," added Kotthaus.

Der Spiegel newsweekly reported on Sunday that the ECB was planning to set a limit on the borrowing costs of individual countries and intervene on the markets to maintain this level.

Spain and Italy have seen their borrowing costs shoot up during the eurozone crisis to levels that forced Greece, Portugal and Ireland to seek a bailout.

The so-called spread, or difference, between benchmark German bonds and the debt-wracked countries would be decisive for the proposed rate cap, Spiegel said.

ECB President Mario Draghi announced earlier in August that his institution "may" buy bonds of struggling countries if they first apply for EU bailout funds and accept tough conditions in return.

He said the details would be worked out before the next meeting of the ECB, scheduled for September 6.

Spiegel said that ECB governors would decide then whether to implement the proposed borrowing cost cap.

The ECB declined to comment on the report on Monday.

On government debt markets, the interest rate, or yield, on 10-year Spanish debt declined substantially in morning trading on Monday to 6.211 percent from 6.443 percent at the close on Friday.

AFP

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