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Euro aid fund should become a bank: France

business Updated: Oct 13, 2011 23:48 IST

Reuters
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France believes the euro zone's EFSF rescue fund should be turned into a bank to leverage its firepower and Greek bondholders will have to accept losses higher than 21%, a finance ministry source said on Thursday.

"We think that obviously the most solid way (of leveraging the EFSF) is for the fund to become a bank so that, in collaboration with the ECB, it could leverage itself," said the source.

"This hypothesis is uncertain because the ECB has already issued a negative opinion on it. We continue to talk: that is what would work best."

Many analysts agree the most effective way to give the €440 billion European Financial Stability Facility more muscle would be to treat it as a bank, making it eligible to borrow at the European Central Bank's regular funding operations.

But both the ECB and Germany have strongly opposed the central bank's involvement.

"The idea is not to have €2 trillion in the fund, it's to have a leverage effect by using other European or international institutions," the source said. "If a state puts in one (to the fund), we could have three or four times that from other partners."