Financial Times
May 20, 2011
The participation of private bondholders in any future debt-rescheduling in the eurozone is a “red line” for the German government in setting up a permanent rescue fund, Berlin has told its 16 partners in the European monetary union.
With little more than a month to go to finalise the details of the €500bn ($713bn) European stability mechanism (ESM) before it has to be approved by European leaders at their June summit, Germany is fighting a furious rearguard action against a majority of eurozone members and the European Central Bank on the issue.
The text of the treaty setting up the ESM – which is supposed to be established in 2013 – has been largely finalised by the 17 eurozone finance ministers, but the details concerning participation of private bondholders remain the main obstacle to agreement.
Germany wants language written into the ESM treaty that would require private bondholders to participate in any rescheduling of debt to ease the liquidity problems for a eurozone member and to take a haircut in any outright restructuring.
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