France, Germany deal on future EU bail-out system: report

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France and Germany on Sunday reached a deal that would make the private sector shoulder some of the burden of future EU bail-outs only on a case-by-case basis, a report said.

Markets have been rattled by German Chancellor Angela Merkel's proposal for investors to shoulder part of the costs of national bailouts but under the new deal reported by Le Monde newspaper this would not happen automatically.

The deal would see government bonds coming with "collective action clauses" that would enable their terms to be reviewed in times of crisis, the paper said Sunday in its online edition.

But this would be done on a "case by case" basis and there would be no automatic expectation that the private sector would have to shoulder some of the burden, the paper said.

The Franco-German deal was being discussed Sunday at emergency talks in Brussels to settle Ireland's bailout, a diplomatic source told AFP.

EU economic and monetary affairs commissioner Olli Rehn "has put to finance ministers a proposal setting out the shape of the future mechanism," the source said, which "foresees contributions on a case-by-case basis for the private sector."

Le Monde said Merkel had hammered out the compromise Sunday in a telephone conference with French President Nicolas Sarkozy.

They were joined on the line by European Central Bank President Jean-Claude Trichet, EU President Herman Van Rompuy and eurozone chief Jean-Claude Juncker.

Merkel made clear on Thursday that a proposal for investors to shoulder part of the costs of national bailouts would apply only after an existing EU rescue scheme expired in 2013.

As calls for a bail-out of Portugal grow and concerns over Spain and Italy increase, Merkel wants to show German voters that once the mood has calmed there will be a proper system for dealing with any repeat of the Irish situation.

Le Monde's report came as Ireland was waiting for EU ministers meeting in Brussels to agree an international bailout for the debt-laden nation and to publish details of the deal later Sunday.

© 2010 AFP

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