The European rescue fund could offer bonds at different interest rates to account for its members' divergent levels of credit worthiness in its attempt to boost lending capacity, Germany's Economy Minister said.
Raising debt at different rates would mean the European Financial Stability Facility (EFSF) would not have to lift the agreed headline sum, a step that has come up against ardent opposition from euro zone member states, especially Germany.
One could for instance work with different interest rates within the EFSF, Economy Minister Rainer Bruederle was quoted as saying in an interview with Die Welt am Sonntag newspaper.
That means the individual credit tranches that the EFSF borrows and passes on to the countries it helps could be raised at different interest rate levels, Bruederle told the paper, according to the pre-publication seen by Reuters on Saturday.
Then one wouldn't have to change the volume.
Europe is discussing ways to beef up the EFSF rescue fund to show it has enough firepower to support other states struggling with their borrowings, hoping this will ease the region's debt crisis.
The fund has a headline value of 440 billion euros ($599 billion) but an effective lending capacity estimated at just 225 billion euros because of the need to secure a triple-A credit rating.
The challenge is to boost it without raising the headline sum, which would be difficult to sell politically to Germany's parliament and public in particular, and for 'AAA'-rated countries not to take more than their share of the burden.
Germany said on Friday it would consider the option of getting euro zone countries who do not have an 'AAA' rating to help boost the capacity of the EFSF by injecting cash.
Making the total agreed amount available is a prerequisite in proposals to buy back the bonds of troubled member states, something Eurogroup chief Jean-Claude Juncker said European leaders should not shy away from.
It would be wrong to create taboos but we cannot overstretch the strong countries, Juncker said in an interview with German magazine Der Spiegel seen ahead of publication.
Der Spiegel magazine also reported in an unsourced reported that the idea of a buy-back, which it said was first raised by the European rescue fund's chief Klaus Regling, had been greeted with sympathy by euro zone finance ministers this week.
Without citing sources, Der Spiegel said Regling's suggestion stood good chances of becoming reality at a European Council meeting in March.
It also cited an unnamed high-ranking German finance ministry source as saying this was a good idea, running counter to official German denials this week.
Greece and Germany have insisted Greece, the first to succumb in the currency bloc's debt crisis, needed no help with debt repayments. A spokesman for Regling declined comment.
Under the proposal being discussed, the EFSF would conduct buy-back operations of bonds of a distressed country, which could help stabilize its debt market, Reuters sources have said.
Credit guarantees and pledges of callable or contingency capital from top-rated countries like Germany are valued by the ratings agencies at 100 percent in the fund. But such pledges for lower-rated countries face a discount.
To give investors an incentive to buy beyond the sum guaranteed by the top countries, one could offer higher interest rates on those pledges, according to Bruederle's proposal.
Six of the 17 countries in the bloc are triple A: Austria, Finland, France, Germany, Luxembourg and the Netherlands.
Of the rest, Greece and Ireland have both tapped emergency help while Portugal and Spain are under pressure, leaving just a few economies that might be in a position to help, including Italy, the third largest economy in the euro zone.
Bruederle also said Europe's fiscal policy should be better aligned but added he was against a European economic government.
We don't want the same tax rates in each euro country. But we do want that the advantages in competitiveness in one country are not paid by the tax payer in another, he said.
A European debt brake in the national constitutions would also be good, Bruederle added.
The debt brake law, which came into effect at the beginning of 2011, stipulates that Germany has to cut its structural deficit to 0.35 percent of gross domestic product by 2016.
(Additional reporting by Michael Nienaber in Berlin, Ilona Wissenbach in Brussels and Renee Maltezou in Athens; Editing by Toby Chopra)