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Deutsche Bank Proposes Plan B to Help ECB Fight Debt

10 December 2010 11:03 (UTC +04:00)

Baku â€“ APA-Economics. The European Central Bank should draft commercial lenders as allies in its fight to stem the euro-region financial crisis by giving them incentives to buy bonds of debt-swamped governments, Deutsche Bank AG says, Bloomberg reported.

In his proposed â€œPlan B,â€ London-based Deutsche Bank economist Gilles Moec said the ECB would limit collateral for one-year central bank loans to investment-grade sovereign paper rated less than AAA, encouraging purchases of debt sold by Spain, Italy, Portugal and Ireland. He also suggested a â€œmargin-call holiday,â€ freeing banks from providing more collateral if the value of the swapped bonds falls.

â€œInvestors still donâ€™t know whether to buy from the periphery,â€ Moec, a former Bank of France official, said in a telephone interview. â€œBut the rates the periphery are paying should be quite tempting so it wouldnâ€™t take much for investors to start buying their debt.â€

German 10-year bonds rose for the first time in three days today, as France backed Germany in refusing to add to the European Unionâ€™s 440 billion-euro ($580 billion) rescue fund and rejecting joint euro-area debt securities. Spanish bonds fell, widening the extra yield investors demand to hold the securities instead of German bunds.

Moecâ€™s proposal would take the pressure off the Frankfurt- based ECB to keep buying the bonds of Ireland, Portugal and Spain to calm markets as European policy makers squabble over how to contain spreading debt losses. The ECB bought the most bonds since June last week, helping reverse debt-market declines.