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From Kirsten Bischoff, Opalesque New York:
Ripples from the Sovereign Debt Crisis made their way around world markets on Monday, after weekend scrambling by EU leaders. The decision to bailout Ireland, and to extend the payments for Greece to 2024 also included steps to limit future bailouts (post 2013) and place more risk on private investors.
“For countries considered solvent, on the basis of the debt sustainability analysis conducted by the Commission and the IMF, in liaison with the ECB, the private sector creditors would be encouraged to maintain their exposure according to international rules and fully in line with the IMF practices. In the unexpected event that a country would appear to be insolvent, the Member State has to negotiate a comprehensive restructuring plan with its private sector creditors, in line with IMF practices with a view to restoring debt sustainability. If debt sustainability can be reached through these measures, the ESM may provide liquidity assistance.”
While expectations are for continued bailouts of other faltering countries (Portugal, Spain, etc.), the above statement by the EuroGroup indicates that solvent European nations are laying the groundwork for tougher restrictions on member nations in the future.
Assessing sovereign risk via private sector analysis
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