The WSJ is reporting that a draft proposal for guidelines of the Eurozone's EFSF fund presented to German Lawmakers Thursday would provide the fund with the ability to make moves quickly and give it more flexibility in terms of how the fund can use its &euro440 billion in assets.
A draft of the guidelines seen by The Wall Street Journal outlines how the EFSF would implement the agreement made at the EU summit on July 21.
According to Dow Jones, the guidelines provided in the draft document would give the EFSF the ability to purchase sovereign debt directly from countries issuing new bonds as well as on the open market. In addition, the EFSF would take the place of the European Central Bank in terms of intervening in sovereign debt markets to improve liquidity.
Perhaps the most important aspect of the draft is the option that allows the EFSF to engage in limited leveraging of its assets, by allowing it to use the bonds it owns as collateral to raise the liquidity in repo agreements with commercial banks.
On the question of when the decisions to purchase sovereign debt on open markets would be made, the draft would require a quick application and approval process by the Euro Working Group and the EFSF Board.
The draft says that there would only be limited public disclosure of the bond buying, and that EFSF purchases would be restricted to countries already receiving aid or precautionary credit. Purchases would be limited to 50% of the total auction.
The EFSF would also have options on when to sell bonds. For example, it could sell the bonds in the secondary market, hold the bonds until maturity, or sell bonds back to the country which issued them.
iShares EU - Last 12 Month
Remember, you are in control your email alerts! You can receive alerts for more than 25 free research report alerts including: The “10.0” Report, The Insiders Report, ETF Leaders Report, and The Focus List.
