Eurozone may drop bondholder losses from ESM bailout fund
Published 26/11/2011 | 05:00
EUROZONE states may ditch plans to impose losses on private bondholders if countries need to restructure their debt under a new bailout fund due to launch in mid-2013, according to EU officials.
Discussions are taking place against a backdrop of flagging market confidence over the issue of sovereign debt and as part of wider negotiations over introducing stricter fiscal rules.
Germany is insisting on tighter budgets and private- sector involvement (PSI) in bailouts as a precondition for deeper economic integration among eurozone countries.
Commercial banks and insurance companies are still expected to take a hit on their holdings of Greek sovereign bonds as part of the second bailout package being finalised for Athens.
But clauses relating to PSI in the statutes of the European Stability Mechanism (ESM) -- the permanent facility scheduled to start operating from July 2013 -- could be withdrawn, with the majority of eurozone states now opposed to them.
The concern is that forcing the private-sector bondholders to take losses if a country restructures its debt is undermining confidence in eurozone sovereign bonds. If those stipulations are removed, most countries argue, market sentiment might improve.
"France, Italy, Spain and all the peripherals" are in favour of removing the clauses, one EU official told Reuters. "Against it are Germany, Finland and the Netherlands."
Austria is also opposed, another source said.
A third official said that while German insistence on retaining private-sector involvement in the ESM was fading, collective-action clauses would only be removed as part of broader negotiations.
Berlin wants all 27 EU countries, or at least the 17 in the eurozone, to provide full backing for alterations to EU treaties before it will consider giving ground on other issues, officials say.
Germany is under pressure to soften its opposition to the ECB playing a more direct role in combating the crisis. Member states also want Berlin to give its backing to the idea of jointly issued eurozone bonds.
German officials dismiss any suggestion of a 'grand bargain', but officials in other capitals, including Brussels, say such a deal is taking shape and suggest that Berlin will move when it has the commitments that it has been seeking -- although it is unclear when that will be.
German Chancellor Angela Merkel said after meeting French President Nicolas Sarkozy in Strasbourg on Thursday that there was no quid pro quo being set up.
"This is not about give and take," she said.
Eurozone finance ministers will discuss the ESM at a meeting in Brussels on November 29-30, including the implications of dropping collective-action clauses from its statutes.
While most countries just want to forget about enforced private-sector involvement, some are adamant that there must be a way to ensure that banks -- and not just taxpayers -- shoulder some of the costs of bailing countries out.
Any changes to the mechanism would have to be approved by all member states and ratified by national parliaments before they can take effect, so Austrian and German opposition could yet derail the push for changes.
Germany and some other member states were hoping to bring the ESM, which will have a lending capacity of €500bn, into force as early as July next year, but disagreement over its structure could delay that. (Reuters)