Merkel Thwarted on Debt Buyback by Parliament

In part, the document says, "Parliament expects that jointly financed or guaranteed purchase programs of government debt would be ruled out for reasons of constitutional and European law, and on economic grounds." While it does not explicitly prohibit the purchase of bonds by the EFSF, it does up the pressure on what is perhaps the single most important measure investors hope will be approved at the meeting of euro zone officials in March.

The report said that analysts were bewildered by the action. Thomas Mayer, chief economist at Deutsche Bank, was quoted as saying, "I don't think they've thought through the implications. What do they want? It's not clear to me." He added that if the ESM were prohibited from buying bonds, three possible scenarios might result: "It's then either the taxpayer engineering a full bailout or the central bank buying all the bonds that cannot be sold in the market and taking the private sector out," he explained. "The third possibility they are not addressing is one that allows an unmanaged default. But I don't think anyone wants that."

He went on to say that if Merkel considers herself obligated to implement the resolution, "we will most likely end up in a situation where we will further burden the European Central Bank with the task of funding countries that cannot access the market."

Fabian Zuleeg, chief economist at the European Policy Center think tank, said that the resolution was not helpful, since Merkel "will want to keep a certain amount of flexibility in European negotiations."