PARIS/BRUSSELS: Two leading international financial institutions faulted Germany for aggravating the euro zone crisis by spooking debt markets, but Berlin seems set to get its way at this week’s European Union summit.
EU leaders are not expected to announce new measures to ease market concerns about the region’s debt, though one source said intense efforts were being made behind the scenes to find ways to inoculate Spain early next year against the threat of contagion. The Bank for International Settlements (BIS) and the head of the European Investment Bank (EIB) both said German Chancellor Angela Merkel’s drive to make private bondholders share losses in any future euro zone sovereign default had intensified the crisis.
“The surge in sovereign credit spreads began on October 18, when the French and German governments agreed to take steps that would make it possible to impose haircuts on bonds should a government not be able to service its debt,” BIS said in its quarterly review.
EU leaders are set to approve a two-sentence amendment to the 27-nation bloc’s Lisbon treaty on Thursday and Friday that would create a permanent European Stabilisation Mechanism to lend to distressed member states on strict conditions.
They will also endorse a statement by euro zone finance ministers specifying that private sector investors will be expected to contribute, on a case-by-case basis, in any sovereign debt restructuring after 2013. But at the insistence of Berlin and Paris, they are unlikely to increase the existing rescue fund or to take any action on a proposal for common European bonds to help resolve the crisis.
A German government spokesman said indications were that the summit would not take up a proposal to introduce communal euro zone ‘E-bonds’ made by Jean-Claude Juncker, veteran chairman of the single currency area’s finance ministers. It is indicated that European officials were considering options such as using the EFSF to buy bonds of distressed states without resorting to fully fledged bailouts.
However, the German spokesman said that would be a bad idea and a senior euro zone source told Reuters it was not being seriously considered. Experts are also studying how to access the full 440 billion euros ($580 billion) in the emergency mechanism if necessary, despite pledges to maintain a cash buffer given to secure a top notch AAA credit rating for the EFSF, the source added.
