Future EU fund should not buy bonds: German official

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A bailout fund being set up for future European debt crises should not buy government bonds, a German official said Thursday, on the eve of a crunch eurozone summit to discuss the issue.

"We are not in favour of buying back bonds on the secondary market," said the source, who spoke on condition of anonymity.

The comments represented the first time Berlin has taken a clear position on this thorny topic, as Chancellor Angela Merkel prepares for a meeting in Brussels where the fund -- the European Stability Mechanism -- will be debated.

Since May 2010, the European Central Bank has bought nearly 80 billion euros ($110 billion) of bonds issued by debt-ridden eurozone countries such as Ireland, Portugal and Greece.

The purchases have been extremely controversial and ECB president Jean-Claude Trichet has said that the future fund should take over this function.

The new fund -- due to come into existence in 2013 -- will be on the agenda at a summit of eurozone leaders on Friday, although final decisions are only expected at a later meeting of the full European Union on March 24 and 25.

As a counterweight, Berlin is hoping to set up what it terms a "competitiveness pact", an attempt to get all eurozone member states singing from Germany's fiscally prudent song sheet.

A "high degree of consensus" has been reached on this issue, the source said.

This pact was set to be a catalogue "of national commitments" taken by individual member states, notably in terms of wage costs and budgetary discipline, the source said.

"The preparatory work is going in the right direction. It contains some important elements for us," said the source.

Nevertheless, the pact looked likely to have been watered-down substantially from tougher proposals initially tabled by Paris and Berlin.

© 2011 AFP

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