Sustainable debt needed to qualify for EFSF support

BRUSSELS (Reuters) - A euro zone country would have to have a sustainable debt and external position to qualify for EFSF support in the secondary bond market, guidelines for the bailout fund obtained by Reuters showed on Thursday.

The European Financial Stability Facility (EFSF) will be able to buy bonds on the secondary market using its full remaining lending capacity once a request from a country is approved by the ECB and euro zone finance ministry officials, the guidelines show.

The document said only countries which respected their deficit-cutting commitments under the EU budget rules, the Stability and Growth Pact, would be eligible for such help.

To be eligible the country would also have to have a track record of reasonable market borrowing costs, no bank solvency problems and respect its commitments to reduce macroeconomic imbalances.

A memorandum of understanding with the country requesting such help would be prepared by the European Commission and the European Central Bank within one to two days, the document said.

The EFSF could then sell the bonds back on the market, once prices went up, but consider that this could potentially disturb the issuance of the country on the primary market.

The EFSF could also hold the bonds to maturity, but this would reduce its lending capacity, the document said, or sell them back to the issuing sovereign to reduce the debt burden the government has to deal with.

Finally the EFSF could use the bonds for repos with commercial banks, according to the document, which is to be discussed by euro zone finance ministers at a meeting on Friday.

(Reporting by Ilona Wissenbach, writing by Jan Strupczewski; editing by Rex Merrifield)