BRUSSELS (MNI) – Germany’s proposal for a permanent crisis
mechanism in which sovereign debt could be restructured and private
creditors put on the hook is for the future and would not affect current
bondholders, Ireland’s central bank governor and ECB Governing Council
member Patrick Honohan said Wednesday.
“The [Irish] bond rates have been increasing very sharply in recent
days and indeed again today,” Honohan told lawmakers in a parliamentary
debate in Dublin that was broadcast live on the web.
European leaders are currently divided over how private sector bond
holders should be made to share the burden if a Eurozone country falls
in to difficulty.
At the moment, if a Eurozone country were to have problems paying
its debts, it could tap into a E440 billion financial stability
facility, which was set up earlier this year for three years. A
replacement for this mechanism, to commence in 2013, is currently under
debate in Europe, with France and Germany preferring a deal under which
investors would shoulder some of the burden.
“The German proposal…dealing with a bail-in of private
creditors…this idea is not a new one but it comes at a time which is
inconvenient for a country whose bonds are under scrutiny,” Honohan
said.
“The view in the market is that is has had an effect [on Irish
spreads],” Honohan said.
He added: “People have too quickly assumed that this would apply to
existing bonds, but in fact it is a proposal for the future…It does
not immediately apply.”
“Has it destabilised the markets? Probably, to some extent, yes,”
Honohan said.
–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com
[TOPICS: MT$$$$,M$$FX$,M$$EC$,M$X$$$,M$$CR$,MGX$$$]