German Fin Min: Private Sector Bailout Involvement Necessary
BRUSSELS -(Dow Jones)- Private investors should share the pain of the sovereign debt crisis in certain euro-zone countries as bailouts by peers are not a long-term solution, German Finance Minister Wolfgang Schaeuble said Wednesday.
"We were right to provide support, however...the crisis in Greece has revealed structural weakness...which cannot, and should not, be routinely fixed by throwing other countries' money at the problem," Schaueble said at the Brussels Economic Forum. "That's why we should provide for private sector involvement."
He added that this should be compulsory, and that he's "not convinced" by arguments that private debt holders having to contribute to the bailout mechanism would push spreads higher.
"If debt sustainability cannot be confirmed for a member state in crisis, private sector involvement becomes compulsory," Schaeuble said. "Strong member states will not provide an automatic safety net for weak member states."
The matter is a priority for the German government, he added, as bondholders, not taxpayers, should deal with the risk as well as the rewards of their decisions.
"It would be wrong to cushion their losses in the future," the Schaeuble said. "Separation of risk and reward undermines the foundation of capitalism."
Nevertheless, he said, those involved in global financial systems should understand that the last year's events have not called into question the integrity of the single currency itself.
"We are faced with sovereign debt crises in individual countries, and not with a currency crisis," the minister said. "The internal and external value of the single currency has remained, in brief, impressively stable," he added, praising the work of the European Central Bank in sustaining price stability.
This in turn reiterates the importance of different interest rates for nations to borrow at, with markets able to "tell governments things they don't want to hear" through this.
"I am convinced we cannot do away with the threat of higher interest rates for profligate states," he said. "The inconvenient truth is that a number of European states lived well beyond their means for the last decade...Greece should serve as a warning."
The temporary bailout mechanisms put in place in the 17-nation currency bloc have "bought time" for Greece, Ireland and now Portugal--whose EUR78 billion bailout package was agreed here by finance ministers yesterday--but ultimately, they must help themselves, he concluded.
"Such solidarity can only prevent an individual crisis from turning into a euro-zone crisis... the only workable course is for those countries in the euro zone who are weaker, to become stronger."