The proposals, which include a commitment not to force private sector bondholders to take losses on any future eurozone bail outs, were announced by Angela Merkel, German chancellor, and Nicolas Sarkozy, French president, in Paris. Together with tough budgetary measures drawn up by Mario Monti’s new Italian government, they will form part of the “fiscal compact” demanded by the European Central Bank to enforce budgetary discipline in the single currency region.
Paris and Berlin issued a joint statement, saying that they reaffirmed their proposals to reinforce fiscal governance in the eurozone. “France and Germany, in full solidarity, confirm their determination to take all the necessary measures, in liaison with their partners and the European institutions to ensure the stability of the euro area”, the statement said.
In an apparent concession, Ms Merkel agreed that private sector bondholders would not be asked to bear some of the losses in any future sovereign debt restructuring, as she had insisted this year in the case of Greece’s second bail out. However, future eurozone bonds will still include collective action clauses providing for potential voluntary rescheduling of private debt.
Ms Merkel said it was imperative to show that Europe was a “safe place to invest”.
Mr Sarkozy, in turn, agreed to Ms Merkel’s demand for a revision of the full EU governing treaty to enshrine an enhanced fiscal disciplinary regime. Ms Merkel, however, watered down her demand that the European Court of Justice adjudicate breaches of fiscal rules.
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