European finance ministers have sent a strong signal they are prepared to begin buying back significant amounts of Greek bonds on the open market, announcing they would reopen discussions to use the eurozone’s €440bn bail-out fund to repurchase the debt of distressed governments.

Monday night’s decision came after an eight-hour meeting of finance ministers in Brussels that was held against a backdrop of plunging markets and mounting fears that the debt crisis that has plagued Greece and the eurozone’s periphery for the last 18 months was now spreading to its larger members, including Italy.

The idea of using the bail-out fund, formally called the European financial stability facility, to purchase bonds from struggling peripheral countries was backed earlier this year by some of the European Union’s top economic officials, including Jean-Claude Trichet, head of the European Central Bank, and Olli Rehn, the European Commission’s economic chief.

The idea was blocked, however, by Germany and the Netherlands amid fears that giving the fund such powers would open up creditor countries to billions in additional commitments of taxpayer money.

But during the Monday night meeting, both countries agreed to reopen the debate, though what specific new powers the EFSF would be given was left ambiguous.

Advocates see the bond buy-back plan as a clean way of reducing Greece’s overall debt burden while getting private bondholders to voluntarily take losses, since they would only get paid a portion of the bonds’ face value. Currently Greek 10-year bonds, for example, are trading at just over half their face value.

A group of major European banks, represented by the Institute of International Finance, has pushed the EU to implement such a plan. According to a six-page white paper presented to finance ministers and obtained by the Financial Times, the IIF said that without such a buy-back programme, Greece’s suffocating debt levels would mean it would not be able to return to economic health.

At a news conference following the meeting, Mr Rehn said he would not exclude any options: “There are a variety of ways of enhancing the flexibility of the EFSF.”

In addition to overhauling the EFSF, ministers also agreed to lower interest rates for countries that are currently receiving bail-out loans from the EU – a policy shift that could be of particular benefit to Ireland, which is currently paying 100 basis points more for its rescue loans than Greece or Portugal.

Although Greece and Portugal have already had their loans reduced, they still pay about 200 basis points above the EFSF’s borrowing costs, and several analysts and economists have suggested that premium should be reduced or eliminated to help bail-out countries emerge from their rescue programmes more quickly.

“We stressed the need to make Greek debt more sustainable,” said Jean-Claude Juncker, the Luxembourg prime minister and euro group president, adding that those ideas would be incorporate in a second bail-out package for the country that would be unveiled shortly.

“Shortly means as soon as possible,” Mr Juncker said, declining to be more specific.

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