HELSINKI: Finland and the Netherlands, the euro zone's most hardline creditor states, cast the first doubts yesterday on a European summit deal designed to save Spain and Italy from being engulfed by the currency bloc's debt crisis.
The Finnish government told parliament that Helsinki and its Dutch allies would block the euro zone's permanent bailout fund buying bonds in secondary markets.
Euro zone leaders agreed earlier that rescue funds could be used in a "flexible and efficient manner" to lower government borrowing costs. The euro fell and safe-haven German Bunds reversed losses on news of the Finnish statement, which raised fears that the latest deal which drew a positive initial market reaction could be fraying.
Several previous market rallies after euro zone crisis agreements have fizzled within a day or two as investors have fretted about the lack of detail, the risk of delay and national vetoes, or the inadequate size of the rescue funds available.
The 17 euro zone leaders agreed in Brussels on steps to shore up their monetary union and bring down borrowing costs for Spain and Italy, regarded as too big to fail but also too expensive to rescue if they are shut out of markets.
They gave few details on the use of the temporary EFSF and permanent ESM rescue funds.
ESM bond buying in secondary markets would require nanimity among euro zone members and that seems unlikely because Finland and the Netherlands are against it, the Finnish government said in a report to a parliamentary committee.
That is essentially true but there is a get-out clause in the ESM's rules which states that if the European Central Bank and European Commission feel the euro zone was under threat, then the rescue fund could act on the basis of an 85 per cent majority vote to do so.
A Finnish proposal that Spain and Italy should issued covered bonds to avoid Helsinki having to demand collateral for any bailout loans, failed to find agreement last week.