The European Central Bank is “being stretched” in its current role as buyer of last resort for European sovereign debt, said Charles Dallara, managing director of the Institute of International Finance.
The ECB’s burden will be eased in late September or early October, when European governments approve changes to a rescue fund, Dallara said today in an interview with Bloomberg Television. Euro-area leaders in July announced plans to allow the European Financial Stability Facility to buy bonds on the secondary market.
“Ultimately the burden on the ECB is going to need to be eased by some degree of fiscal integration and fiscal consolidation,” Dallara said.
The IIF, which represents more than 400 banks and insurance companies, has been a central player in efforts to coordinate a private-sector role in the next bailout of Greece.
The rescue package, the second received by Greece, calls for investors to contribute about 50 billion euros ($72 billion). So far, 39 banks from Germany, France and other European nations have agreed to participate, according to the IIF’s website.
“It’s a solid deal,” Dallara said. “It will come together successfully over the course of the coming weeks.”
The market’s current concerns are broader than worries over whether the Greek rescue package will be completed on time, Dallara said. Markets and governments are in a “tug of war” over the pace of fiscal integration within Europe.
“The markets have not yet seen the conviction, the timetable, the force and breadth of determination that they are looking for toward fiscal integration,” Dallara said.
“Governments have to realize that there is no obligation to markets to come in and buy billions of dollars worth of Italian government paper or Spanish government paper every week,” he said. “The governments have little option but to actually strengthen their credibility with the markets.”
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