EFSF banking license key in bond-buying scheme, Italy says

(MILAN) - The EFSF will need a banking license enabling it to borrow from the ECB if a plan to tackle the debt crisis using eurozone rescue funding is to succeed in lower borrowing costs, Italy said Thursday.

"In order for the 'anti-spread' shield to be efficient and credible it should have a banking license which would allow it to tap into liquidity from the European Central Bank," the Italian ministry said.

Prime Minister Mario Monti floated again the old idea of rescue funds being used to buy the bonds of struggling countries like Spain and Italy in the second market on the sidelines of this week's G20 summit.

Both Madrid and Rome have been hit with rocketing borrowing costs, despite a series of structural reform packages in Italy and a eurozone rescue loan of up to 100 billion euros ($125 billion) in the works for Spain's stricken banks.

The "anti-spread" shield is likely to be discussed when the eurozone's Big Four -- Germany, France, Italy and Spain -- meet for talks in Rome on Friday.

There are several issues surrounding the plan to use the temporary temporary European Financial Stability Facility and its permanent successor the European Stability Mechanism to calm markets currently penalising Italy and Spain.

European leaders last year enabled the EFSF and the ESM to buy government bonds, but it comes with varying levels of conditionality.

Monti has stressed that the shield should not be compared to a bailout, but any cash injection would likely only be given in exchange for the sort of fiscal and structural commitments demanded with a bailout programme.

And while the ministry said France and Spain "like the hypothesis for the EU to create an 'anti-spread' shield for countries which remain in the line of fire despite having carried out reforms and balanced budgets," Germany has yet to be convinced.

"While Germany considers the plan theoretically doable, it holds that there would have to be clear conditions for the EFSF to intervene," it said.

German Chancellor Angela Merkel said Wednesday there were "no concrete plans" for the EU bailout funds to buy the bonds of struggling countries, though it is "one of the options."

Many analysts question whether the 400 billion euros the rescue funds will have following a bailout of Spanish banks will be sufficient to help bring down rates on the roughly 2.5 trillion euros in Italian and Spanish debt.

The ability to borrow from the ECB would give it access to cheap financing as it could pledge the government bonds as collateral.