The most effective way to use the EU bailout fund is to purchase government bonds on the primary market, as the ECB is already doing in the case of Spain and Italy. Conversely, a use of the EFSF on the secondary market or for bank recapitalization would be less efficient.
This is the opinion of Vitor Constancio, vice-president of Eurotower, who spoke today during a conference in Milan. Constancio then specified that the Eurozone banks have 4.000 billion securities in their portfolios to be used as ECB collateral, even if the distribution is not homogeneous.
The banks of some countries do not have sufficient collateral available, but that this - according to the number two of the ECB - is not the case in Italy. To further strengthen the banking system, therefore, Constancio believes that it is necessary "to ask the private sector and shareholders to recapitalize". As for the problems of no confidence in loans among banks in Europe "they do not depend on the lack of liquidity on the part of the ECB", which "provides ample liquidity to the system on request".
