EU Says G-20 Debt Restructuring Talks Could Roil Markets

The Group of 20 nations should take care not to spook markets if they decide to discuss sovereign debt restructuring when finance ministers and central bankers meet next week in Moscow, the European Union said in a planning document prepared for the Feb. 14-16 meeting.

Russia has proposed adding the topic to the meeting’s agenda via talks on the Institute of International Finance’s proposed best practices. IIF, the Washington-based trade group that represented creditors in Greece’s landmark restructuring last year, drew up the guidelines in order to prevent future strains from triggering a sovereign debt crisis like the one facing the euro area for the past three years.

“The EU does not oppose discussing this issue, but we should be aware that it could be market sensitive, in particular in light of the recent legal case on Argentinian debt,” the EU said in its G-20 planning document, dated Feb. 5.

Argentina, which defaulted on $95 billion of bonds in 2001, has been appealing an Oct. 26 U.S. court ruling that said the country can’t treat holders of its restructured debt more favorably than so-called holdout creditors who didn’t take part in writedowns.

The EU document also calls on the U.S. to reach a “credible” medium-term budget plan and tackle high unemployment. Japan needs to meet its medium-term fiscal commitments and China needs to accelerate structural reforms and move “more rapidly” toward a market-based currency system.

The EU assessed its own prospects as much improved, saying “tail risks have significantly receded in the euro area thanks to strong policy actions.” It also said it remains committed to a “timely and consistent implementation” of the Basel III capital accords, which have been delayed in Europe and the U.S. as discussions continue on how to implement the standards.

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