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Merkel Balks at Sovereign Debt Purchases to Beat Crisis

German Chancellor Angela Merkel
German Chancellor Angela Merkel speaks during a press conference on June 20, 2012 in Berlin. Photographer: Johanees Eisele/AFP/GettyImages

German Chancellor Angela Merkel balked at committing to direct sovereign debt purchases through the euro-area bailout fund, pushing back on calls by the bloc’s leaders who support the measure as a way to ease the crisis.

Such a move, while legally possible, “is not up for debate” at present, Merkel said yesterday in Berlin. French President Francois Hollande championed the idea of using the European Stability Mechanism to purchase indebted countries’ bonds as a way to counter rising yields. Just returned from the Group of 20 summit in Los Cabos, Mexico, Merkel said: “I haven’t heard about such things.”

“There is no concrete planning that I know about, but there is the possibility of purchasing sovereign bonds on the secondary market,” Merkel told reporters in Berlin after meeting with Dutch Prime Minister Mark Rutte. “But this is a purely theoretical statement about the legal situation.”

Merkel’s non-committal stance on the measure opens a fresh conflict as euro finance ministers meet today and Italian Prime Minister Mario Monti hosts a four-way summit in Rome tomorrow. Hollande prodded Germany to use the European Union’s permanent rescue fund to buy debt from countries such as Italy, which have taken steps to revamp their economies.

‘Virtuous Countries’

Stocks fell today, with the Stoxx Europe 600 Index down 0.7 percent at 8:59 a.m. in London. The euro, which jumped yesterday on speculation Merkel moved on the subject, fell for the first time in three days, trading at $1.2650. Spanish 10-year bonds advanced, pushing the yield on the securities to 6.65 percent. It had breached 7 percent earlier this week.

The bond-purchase proposal is for “virtuous countries like Italy,” which have improved their public finances, to “be able to get funding for their debt” at better rates than countries that didn’t make the same efforts, Hollande said.

“We’re looking at the ways and means” to use the ESM, the 17-country euro region’s bailout fund, he said.

The French president said he expects to discuss the bond-buying proposal with his German, Spanish and Italian counterparts when they meet in Rome.

Merkel repeated her desire to have an incremental approach to the euro’s woes, saying that the bloc should move “step by step” toward a more integrated union. She also said that she expects a request from Spain in the coming days for aid for its banks. The country may ask for as much as 100 billion euros ($127 billion).

The chancellor meets with leaders from Germany’s parliamentary opposition to finalize an agreement to win their consent for passage of Europe’s fiscal pact and the ESM by the end of the month.

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