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Merkel: Bondholders Must Share the Pain in Europe

Wednesday, 24 Nov 2010 09:37 AM

German Chancellor Angela Merkel said European governments must demand that bondholders share the cost of euro-area debt crises after 2013 because 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. Merkel’s stance “hasn’t been helpful,” Irish Prime Minister Brian Cowen said in an interview with the Irish Independent newspaper published Nov. 12, nine days before Ireland sought a bailout package.

“It’s really about the uncertainty which comes from this monster of a permanent crisis-resolution mechanism,” Carsten Brzeski, an economist at ING Group in Brussels, said in a phone interview. “No one knows what it looks like.”

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.

Liability Clauses

Germany may press buyers of new euro-region bonds to accept liability clauses starting in 2011, two years before the permanent crisis-management system is due to kick in, a Finance Ministry paper shows.

“These are working papers and it’s not sensible to condense working papers that represent a preliminary assessment reflecting certain considerations with the position of the government,” Merkel’s chief spokesman, Steffen Seibert, told reporters in Berlin today. “The current mechanism that runs until 2013 is in operation and none of its conditions will be changed.”

The euro fell 0.2 percent to $1.3345 at 1:30 p.m. in Berlin.

EU leaders are due to debate ways to involve investors in bailout and restructuring costs at a Dec. 16-17 summit in Brussels, aiming to set up a permanent safety net to replace the 750 billion-euro ($998 billion) bailout fund once it expires in 2013. Spanish Prime Minister Jose Luis Rodriguez Zapatero said Nov. 12 he opposes Merkel’s plan, so “it won’t be easy” for her to get her way.

‘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 AG, said Merkel’s plan to make investors shoulder more risk if states can’t pay their debts may derail bond sales from 2013.

Merkel Support Grows

The economic outlook is stabilizing and voter support for Merkel’s Christian Democratic bloc growing even as critics blame her for worsening Europe’s debt crisis.

German business confidence unexpectedly surged to a record in November as domestic spending increased, bolstering the economic outlook, the Munich-based Ifo institute said today. The business climate index reached the highest level since records for reunified Germany began in 1991.

The Christian Democrats and their CSU Bavarian sister party gained one percentage point to 34 percent, the third straight weekly increase and the highest since May 11, a Forsa poll showed today. Her Free Democratic Party coalition partner held at 5 percent.

The Nov. 15-19 poll of 2,500 people for Hamburg-based Stern magazine and broadcaster RTL has a margin of error of as many as 2.5 percentage points.

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German Chancellor Angela Merkel said European governments must demand that bondholders share the cost of euro-area debt crises after 2013 because financial markets need boundaries. We have a very decisive question ahead of us, Merkel said in a speech to parliament in...
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Wednesday, 24 Nov 2010 09:37 AM
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