The EU's economic affairs commissioner Olli Rehn was non-committal today about a controversial idea for euro zone members to issue joint euro-bonds.
He described the proposal to be debated by euro zone ministers and officials later tonight as 'intellectually attractive'. But he added that a similar proposal made by the commission in May had been rejected.
Eurogroup head Jean-Claude Juncker and Giulio Tremonti, Italy's finance minister, called for the euro zone to set up an agency to issue E-bonds in an article in the Financial Times.
But German Chancellor Angela Merkel immediately shot the idea down, arguing that 'competition on interest rates is an incentive to respect stability criteria'. Germany fears joint bonds would raise its own borrowing costs and effectively force it to permanently subsidise the rest of the currency bloc.
Juncker and Tremonti urged the creation of the new bonds to send a message to markets and European citizens about 'the irreversibility of the euro'.
The plan would lead to a 'liquid global market for European bonds', they wrote, which would help protect countries from speculation and attract new capital flows into Europe.
'We believe this proposal provides a strong, credible and timely response to the ongoing sovereign debt crisis,' said Juncker - who is also Luxembourg's prime minister - and Tremonti.
They said the European Council could take steps towards creating an agency to issue the bonds as soon as this month.
Rehn said ministers would discuss upgrading the euro zone's existing €440 billion bail-out fund, already tapped by Ireland, with analysts tipping Portugal and even Spain to come calling next.
Spanish Finance Minister Elena Salgado said it was 'possible' that International Monetary Fund managing director Dominique Strauss-Kahn, who was to join the talks, would suggest increasing the bail-out fund now - before a permanent replacement comes into being in mid-2013.
ECB bought more bonds last week
The European Central Bank has revealed that it bought nearly €2 billion worth of government debt last week.
The ECB said it purchased sovereign bonds worth €1.965 billion, up markedly from the €1.35 billion it bought the previous week.
The amount did not include bond purchases made on Thursday and Friday however, when the ECB reportedly bought huge amounts.
It was still the highest level of purchases since the beginning of July, when weekly ECB purchases amounted to roughly €4 billion worth of bonds issued for the most part by countries on the euro zone's periphery.
Since the bank's Securities Markets Programme was launched in May during the Greek debt crisis, the ECB has bought government bonds worth a total of €69 billion.
In the programme's first week, the ECB bought bonds worth €16.5 billion but the amounts tapered off to zero in late October and early November.
The massive purchases helped ease some tension on government bond markets last week, but yields on Italian, Irish, Portuguese and Spanish bonds all rose today.
While it has agreed to cover market dysfunctions for the time being to ensure effective transmission of its monetary policies, the ECB has also urged EU leaders to work out an effective monitoring system for debt-laden governments.
Last week, Trichet pressed those governments again to 'pursue ambitious and credible multi-year consolidation strategies and implement fully the planned corrective measures'.
Move makes Irish bond trading cheaper
European clearing house LCH.Clearnet today reduced the margin requirement on Irish Government bonds to 30% from 45% of net positions.
The move will make it less expensive to trade Irish Government bonds traded by LCH.
The move reverses the increase on November 25 and comes as a result of the spreads of Irish 10-year government bonds over benchmark German Bunds narrowing in recent days.
The interest rate demanded by borrowers for 10-year Government bonds stood at just above 8.4% this evening.
