Spreads between 10-year Irish bond yields and German benchmarks fell nearly 100 basis points, ending a fierce two-week bout of peripheral debt selling which has raised concerns about the stability of the currency zone and hammered the euro.
Pressure on Greece, Portugal and Spain also eased after a statement by France, Germany, Italy, Spain and Britain at a Group of 20 summit in Seoul confirmed holders of existing debt would not have to shoulder the costs of any near-term rescue.
"Whatever the debate within the euro area about the future permanent crisis resolution mechanism and the potential private sector involvement in that mechanism we are clear that this does not apply to any outstanding debt and any program under current instruments," the statement said.Note the comment in my earlier post from Speigel.
Irish Prime Minister Brian Cowen criticized Germany for pushing the idea of asset value reductions, or "haircuts," for private bondholders in a future rescue mechanism that Berlin wants in place by 2013, when the currency bloc's temporary bailout facility expires. "It hasn't been helpful," Cowen told the Irish Independent newspaper, referring to Germany's plan. "The consequence that the market has taken from it is to question the commitment to the repayment of debt."
Just thinking out loud, but isn't the repayment question a fair one? You will note that everyone is on board with bank "bail-ins" but sovereign is untouchable? How arrogant. This, my friends, remains to be seen.
Germany's, Angela Merkel has been very vocal about "haircuts," for private bondholders. It appears that the EU has come out to reaffirm its position that senior debt is "OK" for now. But, the German's are working towards a future rescue mechanism that will result in "haircuts" for private bondholders by 2013. If you can believe the comments coming out of the EU then Irish 2010-2012 paper could be interesting.
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