Eurozone government bond insurance scheme finally ready

Feb 17, 2012, 16:37 GMT

Luxembourg - A long-delayed scheme to insure 20-30 per cent of the value of bonds issued by vulnerable euro area governments was launched Friday, in an attempt to reassure markets about the currency bloc's solvency.

Klaus Regling, the manager of the eurozone bailout fund, said that while the European Sovereign Bond Protection Facility was ready, it 'will only be activated following a request' from a needy eurozone government.

Eurozone leaders announced the idea of the scheme in October.

The aim then was to reduce ballooning risk spreads on the bonds of Spain and Italy - which were forcing them to pay higher rates of interest on their debt and pushing them closer to default, despite having stronger economic indicators than Greece or Portugal.

Interest rates on the two countries' debt has since decreased - thanks to cheap loans from the European Central Bank which have boosted private banks' demand for government bonds - but are still significantly higher than pre-crisis levels.