Merkel defends private sector role in post-2013 bailout plan

2nd November 2010, Comments 0 comments

German Chancellor Angela Merkel on Tuesday defended a European Union summit decision to make private banks and investment funds bear losses under a permanent crisis fund being set up for heavily-indebted countries.

During an official visit to Belgium, Merkel rejected the criticism of those who argue that banks will raise the rate of interest they demand when buying bonds from weak governments and stir renewed panic on money markets over eurozone contagion.

"I don't believe so," she said when asked if the debate itself would only increase the likelihood of a country crying for help.

"We're talking here, in an explicit manner, of a mechanism we want to introduce after 2013," she stressed.

"Nothing is changing for the current umbrella which covers the entire eurozone and Greece. Everyone knows it is in place until 2013.

"What we are doing now is speaking about the future, and this must be possible," she said of the change in emphasis.

EU nations agreed massive emergency bailout guarantees in May for eurozone countries after bond markets pushed up the cost of borrowing for financially-troubled countries such as Portugal.

That followed a 110-billion-euro joint bailout of Greece with the International Monetary Fund.

EU leaders argued at a two-day summit last week over the role of the private sector in assuming losses under a future fund that would cost taxpayers less under Merkel's vision.

European Central Bank chief Jean-Claude Trichet was against the plan, fearing it would trigger fresh panic on markets, but Merkel reiterated during a speech earlier Tuesday to students in Bruges that taxpayers should not be the only ones to step up to the plate when financial markets are struck by "new mistakes and bad behaviour."

© 2010 AFP

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