Bruederle Says Bondholders Must Pay Crisis Costs as Coalition Shows Unity
German Economy Minister Rainer Bruederle said holders of euro-region bonds must share the costs of any future crisis, underlining coalition unity on a stance that may be driving up risk premiums for Irish and Greek debt.
Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble, both Christian Democrats, are “absolutely right” to demand that investors assume risks when buying euro-region bonds, Bruederle said today in an interview en route from Canada to Berlin. Such a move would avert reliance on taxpayer-funded bailouts should a euro state face insolvency, said Bruederle, a member of Merkel’s Free Democratic Party coalition partner.
“If no haircut instruments are written into new euro stability rules, then markets can speculate with bonds without risks,” he said. “Germany must support this instrument.” A haircut is when a bondholder is required to take a loss on the investment.
Bruederle’s backing for the measure underscores the German government’s determination not to back down over limiting taxpayer exposure in the European Union’s permanent debt mechanism being drawn up by a December summit of EU leaders. The Free Democrats, which are dragging down coalition support as they sink to a record low in opinion polls, criticized a euro- area decision last month not to incorporate automatic sanctions for states that run up excessive deficits.
“The logic of haircuts is that they enhance the responsibility of member states to pursue sound fiscal policy,” said Bruederle, whose trip included talks with Canadian Finance Minister James Flaherty. “False fiscal policy has in that case consequences for the bond issuer and the bondholder.”
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