Finland to block ESM secondary market bond buying

HELSINKI/AMSTERDAM, July 2 Mon Jul 2, 2012 4:26pm IST

HELSINKI/AMSTERDAM, July 2 (Reuters) - Finland will block the euro zone's permanent bailout fund from buying government bonds in the open market, the Finnish government said on Monday, while The Netherlands also indicated opposition to the bond-buying idea.

Comments suggesting a rough time ahead for the idea followed euro zone leaders' agreement at a summit last week to take steps to shore up their monetary union and bring down Spanish and Italian borrowing costs.

They gave few details on how they might use the temporary EFSF and permanent ESM rescue funds to buy bonds.

A Dutch finance ministry spokesman said on Monday his government did not like the bond-buying idea but did not explicitly say the Netherlands would block the plan, saying only that it would evaluate purchases on a case-by-case basis.

"The prime minister said on Friday he is not in favour of buying up bonds," said Niels Redeker, spokesman for the Dutch finance ministry. "Using the existing instruments to buy up bonds will be expensive and can only be done if there is unanimity (between member states). That means the Netherlands would need to vote in favour."

On the insistence of Spain and Italy, now in the eye of the euro debt storm, euro zone leaders decided last week to soften slightly the terms on which countries that observe EU rules and recommendations can get euro zone help to lower market premiums.

The agreement after last week's summit said interventions on bonds markets by the ESM and EFSF rescue funds would be carried out by the European Central Bank, acting as an agent for the funds.

But ESM bond buying on the open market would require unanimous approval from the 17 euro countries and that seems unlikely because Finland and the Netherlands are against it, the Finnish government said a report to a parliamentary committee.

"Finland finds it an inefficient way to stabilise markets," said a senior Finnish government official.

"Due to intervention of Finland and, among others, the Netherlands, the possibility of ESM operations in the secondary markets was blocked," the government said in the report, to parliament's influential Grand Committee.

It was not immediately clear which other governments were opposed to the move.