Schaeuble Rejects Changing Private-Sector Role in ESM

German Finance Minister Wolfgang Schaeuble said he’s opposed to changing the rules governing the euro-area’s future rescue fund, the European Stability Mechanism, including the role of the private sector.

“We talked about the ESM treaty and made it very clear that we’re not prepared under any circumstances to diverge from the agreed line,” Schaeuble told reporters in Brussels today after euro-area and European Union finance ministers’ meetings. The ESM is intended to be a permanent backstop that will take over from the European Financial Stability Facility in 2013.

Germany was the main driver behind the provisions for “private-sector involvement” in the rescue of over-indebted euro members. The July accord on a second Greek bailout threw that into question by declaring Greece’s case “exceptional and unique.” EU leaders agreed on a 21 percent voluntary writedown on Greek debt in July, then increased that share to 50 percent last month.

Greece’s plight and dwindling investor confidence in the bonds of Italy, the world’s fourth-largest debtor, have triggered a reconsideration of bondholder loss-sharing provisions as part of the permanent fund, according to people familiar with discussions about a revamped strategy to combat the currency bloc’s debt crisis.

Germany’s resistance to a revision “is also true for the regulation in the ESM draft treaty on the involvement of the private sector for the unlikely event of a future insolvency and the introduction of collective action clauses in government bonds to be issued from 2013,” Schaeuble said.

Euro-area finance ministers signed the ESM treaty on July 11. Ten days later, government leaders agreed on new powers for it and the temporary rescue fund. Finance ministers now aim to complete a revised treaty by the end of November so it can go to national capitals for ratification.

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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