German Chancellor Angela Merkel balked at committing to directsovereign debt purchases through the euro-area bailout fund,pushing back on calls by the bloc's leaders who support the measureas a way to ease the crisis.

Such a move, while legally possible, “is not up for debate” atpresent, Merkel said yesterday in Berlin. French President FrancoisHollande championed the idea of using the European StabilityMechanism to purchase indebted countries' bonds as a way to counterrising yields. Just returned from the Group of 20 summit in LosCabos, Mexico, Merkel said: “I haven't heard about suchthings.”

“There is no concrete planning that I know about, but there isthe possibility of purchasing sovereign bonds on the secondarymarket,” Merkel told reporters in Berlin after meeting with DutchPrime Minister Mark Rutte. “But this is a purely theoreticalstatement about the legal situation.”

Merkel's non-committal stance on the measure opens a freshconflict as euro finance ministers meet today and Italian PrimeMinister Mario Monti hosts a four-way summit in Rome tomorrow.Hollande prodded Germany to use the European Union's permanentrescue fund to buy debt from countries such as Italy, which havetaken steps to revamp their economies.

Stocks fell today, with the Stoxx Europe 600 Index down 0.7percent at 8:59 a.m. in London. The euro, which jumped yesterday onspeculation Merkel moved on the subject, fell for the first time inthree days, trading at $1.2650. Spanish 10-year bonds advanced,pushing the yield on the securities to 6.65 percent. It hadbreached 7 percent earlier this week.

The bond-purchase proposal is for “virtuous countries likeItaly,” which have improved their public finances, to “be able toget funding for their debt” at better rates than countries thatdidn't make the same efforts, Hollande said.

“We're looking at the ways and means” to use the ESM, the17-country euro region's bailout fund, he said.

The French president said he expects to discuss the bond-buyingproposal with his German, Spanish and Italian counterparts whenthey meet in Rome.

Merkel repeated her desire to have an incremental approach tothe euro's woes, saying that the bloc should move “step by step”toward a more integrated union. She also said that she expects arequest from Spain in the coming days for aid for its banks. Thecountry may ask for as much as 100 billion euros ($127billion).

The chancellor meets with leaders from Germany's parliamentaryopposition to finalize an agreement to win their consent forpassage of Europe's fiscal pact and the ESM by the end of themonth.

Bloomberg News

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