BERLIN (MNI) – German Finance Minister Wolfgang Schaeuble wants a
two-step crisis mechanism to replace the current EU rescue funds after
they expire in 2013, the business daily Handelsblatt reported Friday,
citing a ministry draft.

The first step of the crisis mechanism concerns “basically solvent”
Eurozone member states which need only “short-term liquidity aid.” In
that case, the maturities of the government bonds of these countries are
to be extended, whereby “if needed an additional interest rate cut is to
be envisaged,” Handelsblatt cited from the ministry paper.

In a second and “very last eventuality”, the concerned country
could receive “additional collateral” from its Eurozone peers under the
condition that already a substantial cut of the face value of its
government bonds has been undertaken, Handelsblatt wrote.

Any aid for fiscally ailing Eurozone member states is to be bound
to strict conditions such as a “voluntary suspension of voting rights”
in the EU as well as a “constriction of control of its assets,”
according to the news report.

Schaeuble does not want the new crisis mechanism to be administered
by law because this would require a change of EU Treaties, Handelsblatt
wrote. Instead, he wants to include so-called “collective action
clauses” in the conditions of new bonds issued by Eurozone member
states.

This would allow creditors to change payment conditions by majority
decisions in the case of a default of a country. Individual creditors
would thereby lose their right to counter a restructuring of sovereign
debt papers. This could be achieved for a majority of bonds in a
transition period of six to eight years, the newspaper said.

EU heads of state and government in Brussels agreed last month to
establish a permanent mechanism to aid Eurozone states that fall into
financial difficulty. Germany has made clear that it insists on having
private creditors shoulder part of the financial burden in future
crises.

Schaeuble wants to introduce his proposals in the EU negotiations
on the details for the new mechanism, Handelsblatt wrote. In an
interview published Monday, Schaeuble had already revealed first details
of his plan.

“I envisage a two-stage procedure,” Schaeuble told German weekly
Der Spiegel. If a country gets into payment problems, the EU should
start a consolidation and restructuring program, he said.

“In a first step, the maturities for bonds which are due during
that critical phase could be stretched,” the minister proposed. “If that
does not help, private creditors need to accept, in a second step, a
reduction of their claims. In return they would get guarantees for the
rest.”

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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