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IMF retracts idea for radical EU intervention

Antonio Borges, Director of the IMF's European Department, addresses the media as he releases a report entitled, "Regional Economic Outlook for Europe: Navigating Stormy Waters" in Brussels, Oct. 5, 2011.
AP Photo/Yves Logghe

BRUSSELS - In a dramatic turnaround, a senior official for the International Monetary Fund is retracting an earlier statement that the IMF could intervene in bond markets to support struggling Italy and Spain.

Antonio Borges said that "The fund can only lend its resources to countries, and cannot use these resources to intervene in bond markets directly."

He said that "any alternative lending modalities to what we do now would require a different legal structure" for the IMF and added that such changes had not been discussed with the fund's members.

Earlier Wednesday, Borges had said at a news conference in Brussels that the IMF could possibly invest alongside the eurozone's bailout fund to help Italy and Spain.

The European Central Bank has so far been doing just that, and the eurozone bailout fund is expected to do so too in coming months.

But the IMF's surprise proposal would have profoundly altered its role in the crisis. It has so far helped with loans, contributing close to euro80 billion ($105 billion) to eurozone bailouts, about a third of the total. But it has never intervened in open markets.

Fears are rising about the health of the financial system. France and Belgium are struggling to keep Dexia bank from being the first major European lender to collapse since the end of the 2008 credit crunch.