French Finance Minister Christine Lagarde and her German counterpart, Wolfgang Schaeuble, are meeting in Strasbourg today as euro-region governments draw up plans on containing the debt crisis.
German ministry officials drafted a plan that includes standby credit lines, bond purchases and supervision by national parliaments, to replace the current rescue facility for over- indebted euro countries that expires in 2013. The blueprint, reported earlier in Sueddeutsche Zeitung, was written at staff level and has not been shown to or approved by policy makers, according to a Finance Ministry statement today.
European leaders at their last meeting ?charged euro- region finance ministers with securing the stability of the euro region as a whole, to advance work on economic-policy coordination and to define the outline of the European Stability Mechanism by March 2011,? the ministry said. ?This is of course taking place.?
Germany has clashed with European partners over how to counter bond-market volatility. The euro has dropped 8.5 percent against the dollar this year and the extra yield investors demand to hold 10-year bonds of Italy, Spain and Portugal over German equivalents rose last month to euro-era records.
The draft proposal, contrary to initial German positions, doesn?t foresee automatic contributions from private investors in the rescue of troubled states, the Sueddeutsche report cited the ministry paper as saying. The fund would allow the European Central Bank to stop the purchase of euro-region government bonds, reinforcing its independence, Sueddeutsche said.
Emergency Aid
Under the proposal, euro-region member states would be able at any time to draw on emergency aid that would be tied to strict conditions to remain solvent, according to Sueddeutsche.
The fund would be supervised by an independent body made up of lawmakers from national parliaments, Sueddeutsche said.
Euro states in need of aid would have to deposit collateral of at least 120 percent of the desired loans in the form of gold reserves, shares in companies or claims on income, the newspaper said.
The so-called European Stability and Growth Investment Fund would be allowed to buy government bonds by offering bond holders debt conversion on a voluntary basis. While bond investors may suffer losses, these would be smaller than the risk of nonpayment, Sueddeutsche said.
The fund would hold a minimum amount ready at all times for short-term financial aid, it said.
The French and German finance chiefs are discussing how the two countries can develop joint economic forecasts on growth, inflation, investments and the labor market, according to Martin Kreienbaum, Schaeuble?s spokesman.
To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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