IRELAND COULD BE AMONG the first EU countries to introduce legislation which would see bondholders bearing part of the brunt of future financial crises.
After announcing the Irish bailout deal on Sunday night, the EU said its ministers had agreed on the introduction of such legislation.
EU ministers agreed the framework for a new permanent mechanism to deal with sovereign debt crises in Europe which sees bondholders take a hit instead of taxpayers.
Junior bondholders of Irish banks, who hold subordinated debt, are expected to pay part of the bailout deal, although senior bondholders will not. Reuters reports that this decision was made in order to stem fears that involving senior bondholders would affect eurozone countries already under market pressure over their debt level.
However, Time reports that the EU’s decision could make the debt crisis in Europe even worse by showing how limited the eurozone’s options for tackling contagion fears have become and by virtue of the poor timing of the announcement.
The EU’s declaration of a permanent mechanism little to quell market fears that Spain, Portugal and Italy would also be in trouble. Instead, investors who were concerned about now being forced to take a ‘haircut’ on their investments, began dumping their Spanish and Portuguese bonds, according to Time.
The Irish Examiner reports that the Irish government could introduce this legislation before Christmas.
EU sources told the Examiner that they believe it is likely to be introduced earlier in Ireland than other EU countries in order to anticipate future developments in the Irish banking sector.
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