Germany Raises Orderly Defaults

From the FT:

Our friends and rivals over at The Daily Telegraph have gotten their hands on an interesting document from the German government detailing its proposals for EU treaty change, and have helpfully posted it online (with an English translation by the Open Europe think thank).

Although the Telegraph focuses on its implications for Britain, there is a significant amount of detail on how Berlin would like to change eurozone economic governance, including yet another stab at enshrining bondholder “haircuts” in the EU treaties.

For those who haven’t followed the debate closely, there is now a closed-door fight going on about whether Greece really will be the only country that sees its bondholders pushed into losses – as the eurozone’s leaders have repeatedly insisted in their summit conclusions – or whether the bloc’s new €500bn rescue fund, which could come into place as early as next year, should allow for organised defaults.

When broader default powers were mooted for the ESM at this time last year in a much-discussed agreement between France’s Nicolas Sarkozy and Germany’s Angela Merkel in the French seaside town of Deauville, bond markets swooned, sending Ireland and then Portugal into bail-outs. Days later, during a G20 meeting in Seoul, Merkel was forced to back down. But the issue clearly hasn’t died.

http://blogs.ft.com/brusselsblog/2011/11/germany-raises-orderly-defaults-again/#axzz1dzjA69x1