EU Revives Buyback Idea as Crisis Hits Italy

European finance chiefs cast about for a strategy to halt Greece’s debt spiral, reviving previously discarded ideas and sharpening a dispute with central bankers as the rot spread to Italy.
As exploding bond yields in Italy and Spain brought the crisis closer to the heart of the euro area, Europe’s search for answers took it back to a proposal scuttled by Germany this year to buy back discounted debt. Also being considered are remedies that would put Greece into temporary default, countering pleas from the European Central Bank to avoid that step at all costs.
The brainstorming in Brussels failed to stem the plunge in European shares and bonds of the most-debt laden countries, reflecting investor concern that their efforts will be overwhelmed. The euro fell to its weakest in four months. Italy’s 10-year bond yields exceeded 6 percent, reaching the highest since 1997. Milan’s stock index fell to its lowest in more than two years.
“They are misjudging the size of the problem they face,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Plc. “This is a euro-wide crisis and again they are behind the curve.”
Nine hours of talks yesterday yielded a six-paragraph statement in which the 17 euro governments pledged to flesh out a new master plan “shortly” to end the 21-month-old crisis, without setting a timeline. The meetings resumed today with all 27 EU finance ministers plotting a response to the release of bank stress tests later this week.

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