German Chancellor Angela Merkel won European Union backing for a rewrite of EU treaties to create a permanent debt-crisis mechanism by 2013 to prevent a repeat of the Greece-led shock that jolted the euro.
As the biggest contributor to ¤860 billion ($1.2 trillion) in loans and pledges to stem this year’s debt crisis, Germany wants to spare taxpayers the costs of any future operations to rescue financially distressed states.
“We won’t allow only the taxpayers to bear all the costs of a future crisis,” Merkel told a press conference in Brussels today after a summit of EU leaders. There is “a justified desire to see that it’s not just taxpayers who are on the hook, but also private investors.”
While the EU said debt restructuring wasn’t discussed, concern that Germany will dictate the final shape of the 16- nation euro region’s crisis mechanism accelerated declines in bonds in deficit-strapped Ireland, Portugal and Greece.
“There are a lot of event risks coming up, with the Portuguese budget and the Greek local elections,” said Orlando Green, assistant director of capital-markets strategy at Credit Agricole Corporate & Investment Bank in London. “There’s a build-up of immediate risks that the markets are nervous about. In terms of the EU, this brings something else into the ballgame, which the markets will be looking at.”
Bond holders
Bonds in Greece, saved from the brink of default by EU and International Monetary Fund loans in May, led a decline by so- called peripheral European securities as Germany’s triumph spurred concern that the EU mechanism will force bond holders to bear the costs of future bailouts. The extra yield investors demand to hold Greek 10-year debt over German equivalents rose to 813 basis points, the highest since September 30.
Portuguese bonds fell for a third day as a survey showed the opposition Social Democrats increased their poll lead over Prime Minister Jose Socrates’ Socialist Party. The spread over German bunds is now 334 basis points for Portuguese bonds and 434 basis points for Irish bonds.
German bonds advanced as investors sought safer assets, paring their weekly drop.
