Crisis mechanism would affect investors

Crisis mechanism would affect investors

German and Dutch leaders stress that private-sector investors should share costs of future crises.



Germany has insisted that private investors should be obliged to carry a share of losses incurred if eurozone governments make use of a permanent crisis mechanism approved by EU leaders.

Angela Merkel, Germany’s chancellor, said today (29 October), at the end of a two-day summit of EU leaders, that the inclusion of private investors “is very important” to German taxpayers.

“We won’t allow taxpayers alone to bear all the costs of a future crisis,” Merkel said. She said investors should also share responsibility if a country’s debt had to be restructured.

Mark Rutte, the Dutch prime minister, echoed Merkel’s comments, saying that any effective crisis mechanism should “emphasise burden-sharing for the private sector”.

The permanent crisis mechanism agreed to by EU leaders would replace a €440 billion temporary mechanism – the European Financial Stability Facility (EFSF) – set up for the eurozone in May. The EFSF expires in 2013.

Details of the new mechanism will be prepared by Herman Van Rompuy, the president of the European Council, and the European Commission for the next EU leaders’ summit in December.

EU leaders agreed in principle, however, that there should be “a role for the private sector” in the mechanism, a reference to banks and other investors in eurozone government debt.

Fear that investors might be affected by the EU’s plans have already spooked the markets, forcing up yields – the amount investors demand to hold certain bonds – on Greek, Portuguese and Irish debt.

During the discussion on the permanent mechanism on Thursday (28 October), Jean-Claude Trichet, the president of the European Central Bank, warned leaders about including private investors, saying it could be “counter-productive” if it led to a loss of confidence in existing debt.

Jean-Claude Juncker, Luxembourg’s prime minister, said the issue of including private investors was “very sensitive”, adding it could “lead to confusion in the markets”.

Constant Brand 

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