GERMANY:GERMAN FINANCE minister Wolfgang Schäuble will press his EU colleagues today on permanent, pan-European rules to incorporate private investors into future bailouts of distressed euro members.
A draft paper prepared by Mr Schäuble's ministry, seen by The Irish Times, calls for new bailout rules that strike a "fair compromise between debtor states and sovereign debt holders".
Berlin is confident that, unlike last week, markets will not be unsettled by today’s discussion of a new structure to replace existing temporary EU bailout structures that expire in 2013.
Asked how further market jitters could be prevented, a senior official in Berlin said: “Only Ireland can answer that.”
Austrian central bank governor Ewald Nowotny went further yesterday, telling national radiothat a “step to calm the markets would make sense”. Berlin has planted its foot on the post-2013 accelerator, sources say, because of the complex nature of the negotiations and the tight timeframe.
This is particularly the case for Germany, which needs agreement on a permanent mechanism – including, it hopes, private sector bailout participation – before its constitutional court hears a challenge next year into the existing temporary plan.
Government legal advisers say a robust deal is Berlin’s best chance to prevent the current emergency mechanism, created to rescue Greece last May, being thrown out by German judges under the Maastricht Treaty’s “no bailout” clause.
“The talks will go towards removing uncertainty,” said a finance ministry spokesman yesterday.
“That uncertainty is what our minister has always said is what upsets the markets most.”
The German draft paper presents two alternatives for a permanent mechanism.
The “legal” option would see the introduction of European insolvency proceedings which, because of the transfer of sovereignty, would require a treaty change and referendum in Ireland.
The “treaty” option would incorporate into post-2013 sovereign debt sales “collective action clauses”, already a feature of some bond issues, which would open the door to a “haircut” for private investors on distressed investments. “An examination of this option is necessary . . . and should be carried out in 2011,” the draft paper says.
The future mechanism should offer euro members a “toolbox” of measures, Berlin suggests, including the ability to cut creditor interest rates and to permit new bond sales. In return, recipients of aid will face “strict reform demands on economic and financial policy”and the “voluntary” suspension of voting rights and EU funds “so far as legally possible”.
