Brussels, 26/11/2010 (Agence Europe) - A spokesperson for EU Economic and Monetary Affairs Commissioner Olli Rehn said on Friday 26 November that the Commission welcomed the contributions from national governments and thinktanks on how the permanent eurozone debt crisis management system to be set up after 2013 could operate, and it was not a case of fait accompli. He said that the present stage was one of reflection and analysis of the existing set-up and the Commission would unveil the outcome of its preparatory work early in December ahead of the European Council.
Germany's ideas of how the future mechanism would operate have been reported in the media this week. Berlin's idea is that the private sector must be prepared from the outset to assume some of the financial burden arising from possible restructuring of the section of a country's debt that is in euros. Addressing the Bundestag on Wednesday 24 November, German Chancellor Angela Merkel asked whether negotiating a public debt was the only trade deal in the world not be subject to risk. She urged her European partners to have political courage, explaining that politics should have predominance over the financial markets. The biggest economy in the eurozone, Germany is in the front line for providing financial aid to eurozone countries in need, like Greece and, in the near future, Ireland. It managed to get the European Council recently to agree to slightly change the Lisbon Treaty to put the new eurozone debt crisis management system on a sure legal footing (see EUROPE 10247).
Under Germany's ideas, a eurozone country struggling with its budget would have to introduce an economic adjustment programme to restore its public finances and the expiry date of its sovereign debt would be automatically extended. If this extension of the repayment deadline is not sufficient, then creditors could be asked to make “haircuts” (trim, scale back) to the value of the bonds they hold. In parallel, a special intervention fund would be introduced to replace the current European Financial Stability Fund (EFSF) which will be in operation until 2013.
Private sector involvement in the cost of restructuring a country's debt would be included in the collective action clauses accompanying future bond emissions. Already used by most eurozone countries when selling their bonds overseas, such clauses allow a majority of bondholders to agree on debt restructuring measures that would apply to all holders of the same type of bond. Finland issued special recommendations at the recent European Council (see EUROPE 10249) and suggests they do not require a change in the treaty and could be introduced by means of an intergovernmental agreement like the one used to set up the EFSF.
Addressing the European Parliament on Wednesday, President of the European Commission José Manuel Durão Barroso said that the permanent eurozone debt crisis management mechanism would have a European dimension even though it would be funded from national budgets (see EUROPE 10263). He explained that it would have three sections - a macroeconomic adjustment programme, financial measures and private sector involvement. He said that he had warned Europe's leaders against automatic inclusion of the private sector before details of any intervention have been worked out. Germany's insistence on private sector involvement has been accused of bumping up the cost of rolling over the sovereign debt of countries on the geographical fringes of the eurozone. Ireland's unveiling of a four-year economic adjustment programme has not calmed the markets (see EUROPE 10263). The interest rates charged for rolling over the Irish, Portuguese and Spanish state debts are rising steadily. Portugal introduced an austerity budget for 2011 on Friday and is being singled out as the likely next eurozone crisis victim (see related article). (M.B./transl.fl)