France, Italy against making banks pay for bailouts: report

25th November 2011, Comments 0 comments

France and Italy are pushing for the removal of a clause from the EU's future ESM debt rescue fund statutes that would make private sector investors take losses as part of country bailouts, a German newspaper reported.

France and Italy want the change as they believe that the participation of private investors -- banks and investment funds -- in a recent second Greek bailout only increased tensions on the markets and made the eurozone debt crisis harder to manage, the Suddeutsche Zeitung said its edition to appear on newstands Saturday.

The European Stability Mechanism, due to take over from the temporary European Financial Stability Facility set up after a first Greek bailout in May 2010, could require private investors to accept losses as part of a rescue of a eurozone country.

Private sector creditors have been forced into accepting a 50 percent loss on their holdings of Greek government bonds, equal to 100 billion euros ($133 billion), as part of the second bailout for Athens agreed earlier this year.

"At this moment, nobody wants eurozone sovereign bonds," the newspaper quoted a source close to the German government as saying.

A sale of German bonds, usually seen as the safest of investments, flopped this week, suggesting that the eurozone debt crisis was spreading even to core eurozone states after snaring Greece, Ireland and Portugal, and threatening to swallow up Italy and Spain.

Germany, which has been the driving force behind forcing private investors to accept losses as part of bailouts, wants the introduction of the ESM to be sped up.

German Finance Minister Wolfgang Schaeuble wants the ESM brought in sooner as he believes it will be more credible in the eyes of investors, the Die Welt newspaper reports in its Saturday edition.

© 2011 AFP

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