Eurozone crisis: The banks will chip in… a bit
29 November 2010
In addition to putting together a rescue package for Ireland, eurozone leaders have decided to rope the private sector into contributing to sovereign bailouts from 2013. A step in the right direction, lauds the press, but the crisis isn’t over yet.
“The insane race between eurozone leaders and the markets marked a decisive new phase,” recaps La Tribune. On 28 November, “the EU 27 finance ministers finalised the €85 billion rescue package for Ireland,” explains the French daily. “More importantly, however, Paris and Berlin agreed to give permanent form from 2013 to the line of defence set up to keep the eurozone out of the systemic crisis to which exploding public debt leads. Having learned from the Greek experience, the leaders realised they had to show a united front – and without further delay.”
The European Financial Stability Mechanism involves roping private creditors into any future bailouts for countries in dire straits. But “contrary to what Germany initially had in mind, this private-sector assessment will be decided on a ‘case-by-case’ basis”, adds La Tribune, and only in cases of insolvency, not mere liquidity shortfalls. Specifically, so-called collective action clauses will be included in future sovereign debt issues after mid-2013, which will make it possible to negotiate restructuring with private-sector creditors.
An open invitation for investors to speculate
“Germany has been rightly arguing for an orderly mechanism to allow countries to default if they cannot repay their debts. The collective action clause could be a way to achieve this,” lauds the Financial Times. As the City daily points out, “Some countries already face sky-high borrowing costs. And it is clear that there can be no return to pre-crisis conditions, where all could borrow at or near German rates. That flawed model is now broken. Berlin’s ideas may not be the final destination, but at least they point in the right direction.”
FT’s German offshoot takes a warier line. “The results seem a success – and likely to calm down the markets,” concedes the Financial Times Deutschland. “But the governments share the blame for letting the time pressure mount to dangerous levels. That goes particularly for Angela Merkel’s political style of making trenchant demands like creditor liability. She may be more concerned about making an impression on the German electorate than on the global markets. But remaining silent for weeks and only letting a few details leak out without any comment is an open invitation for investors to speculate.”
Finance ministers should call creditors to the cashdesk
“From here on in, less solvent countries will have a hard time raising funds because investors will opt for sovereign debt from stronger economies,” worries El Mundo. “With the Damocles’ sword of a bailout hanging over its head, Spain is one of the countries that investors will flee.” On the other hand, the Spanish daily admits, “the new system could have the advantage of forcing the government to be a lot more exacting about deficit control – and consequently about issuing sovereign debt.”
In the meantime, as the Süddeutsche Zeitung notes, the €85bn slapped on the table by the EU and IMF “are mere first aid. To really stop the debt crisis, finance ministers should call creditors to the cashdesk. And on the double.”