Friday 24 November 2017

Merkel seeks ‘boundaries’ for bondholders in euro rescue push

German Chancellor Angela Merkel said the euro faces an 'exceptionally serious' situation. Photo: Bloomberg News
German Chancellor Angela Merkel said the euro faces an 'exceptionally serious' situation. Photo: Bloomberg News

German Chancellor Angela Merkel said European governments must demand that bondholders share the cost of euro-area debt crises after 2013, saying financial markets need "boundaries."

“We have a very decisive question ahead of us,” Merkel said in a speech to parliament in Berlin today.

“Do politicians have the courage to place the risk burden on those who make money? Or is trading in sovereign debt the only business in the world in which there is no need to take risk?”

Merkel is stepping up her insistence on what she called “the primacy of politics” over markets as she seeks to rally fellow European Union leaders behind her demand to impose risk on holders of future government bonds.

Spanish Prime Minister Jose Luis Rodriguez Zapatero said November 12 that he opposed Merkel’s plan for the euro-area rescue system from 2013, so “it won’t be easy” for her to get her way.

The existing euro bailout fund set up in May worked as intended for Ireland, the second euro-region country to seek aid after Greece, Merkel said. While Germany views Ireland’s request “positively,” help will come with “conditionality” to ensure the country cleans up its finances, she said.

The euro fell 0.4pc to $1.3309 at 11:52am in Berlin.

EU leaders are due to debate detailed ways to involve investors in bailout and restructuring costs at a December 16-17 summit in Brussels. The aim is to draw up a permanent safety net to replace the €750bn bailout fund once it expires in 2013.

‘Exceptionally serious’

Merkel drew criticism from the European Central Bank and a German bankers’ group for her stand on making bond investors pay and for saying yesterday that the euro faces an “exceptionally serious” situation, remarks that helped send the single currency to a three-month low.

“That irritates me,” European Central Bank Governing Council member Ewald Nowotny said in an interview on Austria’s ORF television late yesterday.

“The euro is not in danger. Individual countries, and the banking systems of these countries, are in danger. You have to make the distinction.”

Germany’s BDB banking association, which represents lenders including Deutsche Bank, said Merkel’s plan to make investors shoulder more risk if states can’t pay their debts may derail bond sales from 2013.


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