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EU `haircut´ plans rattle bondholders
Date 29/10/2010 14:14  Author webmaster  Hits 1248  Language Global

29 OCT 2010

Investors face large potential losses on eurozone debt under German plans likely to win backing from EU leaders on Friday – risking a boycott of Greek, Irish, and Portuguese bonds.

By Ambrose Evans-Pritchard and Bruno Waterfield in Brussels | Telegraph

Germany has agreed to give the EU's €440bn (£383bn) bail-out fund permanent status rather than letting it expire in 2013 as planned, but only as part of a "Crisis Resolution Mechanism" that forces bondholders to share losses from any future bail-outs. The fund must be anchored in EU law through changes to the Treaties in order to head off legal challenges at Germany's constitutional court.

A draft proposal from Berlin – now serving as a working text for the European Commission – calls for "orderly insolvency" by eurozone countries in trouble. Details are sketchy but this "Chapter 11" for sovereign states would include an extension of debt maturities, a "holiday" on interest payments for as long as needed to let debtors recover, and a suspension of bondholder rights. The blueprint is akin to debt-restucturing schemes used by the International Monetary Fund.

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