Finland urges EU covered bond scheme
By Sarah Collins | Thursday 28 June 2012
Finland’s Prime Minister Jyrki Katainen has urged vulnerable states to issue “covered” or fully collateralised bonds to access financial markets at lower rates. The bonds, which would be backed by state assets or tax receipts, could potentially be bought by either of the EU’s rescue funds to ensure adequate demand. “This is what Finland did in a difficult economic situation in the 1990s and it is standard practice for banks today,” Katainen said.
EU leaders are expected to discuss emergency measures to calm Italian and Spanish bond markets at a summit, on 28-29 June, including the possibility of allowing the rescue funds - the European Financial Stability Facility or the European Stability Mechanism - to buy bonds on primary or secondary markets. Spanish Premier Mariano Rajoy sad the idea of using the ESM to recapitalise banks directly was also “a possibility” to help avoid costly bailouts adding to government debt. “The cost of borrowing for Spain is obviously very expensive and I think that Europe and the eurozone have to be conscious of that,” Rajoy said at a meeting of the centre-right European People’s Party ahead of the summit. “It won’t help anyone if we can’t finance ourselves.”
As part of a long-term plan to save the euro, the EU’s top four officials - the heads of the European Commission, Central Bank, Eurogroup and Council - have suggested eurozone countries might eventually pool their debt by issuing common eurobonds, but the plan has been shot down by Germany, Finland and the Netherlands. “We all have promised to each other to follow the stricter fiscal rules and it would enable to lower the interest rate in the long term,” Katainen said. German Chancellor Angela Merkel, who was also at the EPP meeting, said the central subject for the summit was to agree a “pact for growth” that could stimulate jobs in Europe.