Ireland, Portugal Probably Won't Tap EU Fund, Coalition's Dautzenberg Says
Portugal, Spain and Ireland, all of which saw their bond-yield spreads over Germany rise this week, probably won’t need support from the euro-region rescue fund, a senior lawmaker from Chancellor Angela Merkel’s party said.
The Luxembourg-based 440 billion-euro ($558 billion) European Financial Stability Facility, headed by former European Commission official Klaus Regling, was set up in May as the Greek debt crisis threatened to spill over to other euro states.
“I see -- and Mr. Regling stressed that as well in the past days -- that the stabilization fund is probably not going to be used,” Leo Dautzenberg, parliamentary Finance Committee spokesman for Merkel’s Christian Democratic Union, said today in an interview.
Irish and Portuguese government bonds fell yesterday, pushing the yields on 10-year securities to records versus benchmark German bunds. In a speech in Riga the same day, Merkel said that debt-laden governments must stick to their deficit- cutting programs because Germany won’t agree to have the euro fund turned into a permanent facility to provide aid.
“The crisis mechanisms now in place are temporary,” Merkel said in the Latvian capital. “Germany won’t agree to an indefinite prolongation. Otherwise, people would say ‘we’ve got such a nice rescue package in place that this can go on forever.’”
European central banks bought Greek, Irish and Portuguese bonds today, according to a trader involved in the transactions, as the securities’ premiums to German debt surged for a third day.
The Portuguese-German 10-year bond spread widened as much as 18 basis points to 372 basis points today, and was at 363 points as of 12:23 p.m. in London. The Irish-German spread was 8 basis points wider at 381 basis points.
The rescue fund, which is limited to three years, is the main part of a 750 billion-euro aid package hammered out by European Union finance ministers to combat a sovereign debt crisis. Another 60 billion euros will come from the commission - - the EU’s executive arm -- and 250 billion euros from the International Monetary Fund.
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