Investors in sovereign debt involved in bailouts should incur some losses, Otmar Issing, a former member of the European Central Bank, writes in the Financial Times.
“If a permanent rescue mechanism is established, we should also have a restructuring regime that involves losses for private investors,” Otmar wrote. “Default must be a credible threat -- otherwise investors will have a strong incentive to buy bonds offering higher interest rates without taking into account the associated risks,” he wrote.
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