The European Commission on Wednesday dubbed an idea to use eurozone rescue funding to lower high borrowing costs for Spain and Italy via a bond buyback, as "financial paracetamol".

Amadeu Altafaj, spokesman for the EU's eurozone commissioner Olli Rehn, said using the European Financial Stability Facility - or its successor, the incoming European Stability Mechanism - to tame runaway bond yields and spreads "could be useful to calm markets".

The idea, according to some reports from G20 talks in Mexico, is to use hundreds of billions of euros available in the EU financial firewall to buy debt directly from governments struggling to obtain competitive rates on money markets. This would force down the risk premium.

[AFP]