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Reply #8: Germany ready to shift on ESM bondholder losses [View All]

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Demeter Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Dec-05-11 07:17 AM
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8. Germany ready to shift on ESM bondholder losses

Germany is prepared to soften language in the euro zone's permanent bailout mechanism compelling bondholders to accept losses, in exchange for much stricter budget rules, four sources have told Reuters.

The shift would not completely remove the possibility of private bondholders having to accept losses in the future, but it would align the statutes of the European Stability Mechanism more closely with IMF rules, creating a level playing field for private buyers of euro zone sovereign debt.

While acknowledging movement in Germany's position, a senior euro zone source emphasised that it depended on securing agreement among the 17 euro zone countries on stricter budget oversight, sanctions for those that miss macroeconomic targets and the possibility of taking transgressors to court.

The source said private sector involvement (PSI) -- the ability to have banks and insurance companies share losses when a sovereign defaults or restructures its debt -- would not disappear from the ESM, "but the wording could be eased."
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