Germany sees forcing investors to take a loss in future euro-area debt crises as a red line and won’t back down in the face of opposition from the European Central Bank and some governments, Deputy Finance Minister Steffen Kampeter said.
Finance ministers begin talks in Brussels today on a permanent crisis-resolution system to replace the 750 billion-euro ($1 trillion) rescue fund set up in May once its mandate expires in 2013. Germany won’t accept any deal that doesn’t involve investors, Kampeter said late yesterday in an interview in Karlsruhe, southwestern Germany.
Chancellor Angela Merkel’s government “stands full-square behind involving private investors in bailouts” from 2013, said Kampeter. The details of investor write-offs “still have to be worked out, including their scope.”
Merkel clashed over the safety net with ECB President Jean-Claude Trichet, who said that forcing euro-area bondholders to accept losses risked undermining confidence as countries such as Ireland and Portugal struggle to slash their deficits. Spanish Prime Minister Jose Luis Rodriguez Zapatero said Nov. 12 that he opposed Merkel’s plan, so “it won’t be easy” for her to win over fellow EU leaders.
‘Don’t Underestimate Germany’
“We got what we were looking for at the last EU summit,” when leaders backed Merkel’s plan to rewrite the bloc’s treaties to establish a permanent crisis mechanism, said Kampeter. “Don’t underestimate Germany on this.”
Merkel has shifted her tone on the crisis mechanism as bond yields of indebted euro-area nations have soared since she won EU agreement on Oct. 29 to consider her plans. In a speech to a party convention of her Christian Democratic Union in Karlsruhe yesterday, Merkel suggested that an Irish bailout may be the price of ensuring the euro’s stability.
The euro climbed against the dollar today, gaining 0.2 percent to $1.3611 at 11:02 a.m. in Berlin.
“If the euro fails, then Europe fails,” Merkel told CDU delegates. Germany’s task is to “anchor a new stability culture in Europe” to prevent a repeat of the debt crisis that spread from Greece.
Germany’s bargaining position -- making bondholders pay for future debt crises and locking it in by changing EU treaties -- was presented in a “confusing” way that had a “very negative effect on markets,” Henrik Enderlein, a political economist at the Hertie School of Governance in Berlin, said in a phone interview.
Germany is now pushing Ireland to take aid in a bid to calm the markets in an “alliance” with the Netherlands, whose banks hold Irish debt, and the ECB, which is reluctant to support euro-area states by buying their bonds, he said.
The Germans “almost have to take a schizophrenic position,” Enderlein said. “On the one hand, they don’t want to give a blank check” for future bailouts. “On the other hand, they don’t want to put the euro at risk.”