German 'bail-in' plan for government bonds risks blowing up the euro
Telegraph - Feb 15, 2016
A new German plan to impose "haircuts" on holders of eurozone sovereign debt risks igniting an unstoppable European bond crisis and could force Italy and Spain to restore their own currencies, a top adviser to the German government has warned.
“It is the fastest way to break up the eurozone,†said Professor Peter Bofinger, one of the five "Wise Men" on the German Council of Economic Advisers.
"A speculative attack could come very fast. If I were a politician in Italy and I was confronted by this sort of insolvency risk I would want to go back to my own currency as fast as possible, because that is the only way to avoid going bankrupt,†he told The Telegraph.
The German Council has called for a “sovereign insolvency mechanism†even though this overturns the financial principles of the post-war order in Europe, deeming such a move necessary to restore the credibility of the "no-bailout" clause in the Maastricht Treaty. Prof Bofinger issued a vehement dissent.
The plan has the backing of the Bundesbank and most recently the German finance minister, Wolfgang Schauble, who usually succeeds in imposing his will in the eurozone. Sensitive talks are under way in key European capitals, causing shudders in Rome, Madrid and Lisbon.
