Germany is looking to present plans next month for a permanent insolvency mechanism for the eurozone to put in place rules for emergency funds for countries facing debt rescheduling.
According to a report in the Financial Times (FT), the German government believes the only way private lenders can be forced to help pay for the consequences of a future financial crisis, such as the Greek debt crisis, is with a permanent “crisis resolution” mechanism in place.
The new mechanism would replace the £385 billion European Financial Stability Facility (EFSF), which was set up in June as an emergency measure after the Greece rescue plan. (article continues below)
The EFSF is only meant to last for three years, and Germany—who is the largest guarantor—does not want to extend the scheme.
The scheme could require changes being made to the Lisbon treaty.
A senior German government official told the FT: “There are people who say we need no such permanent mechanism. But we must be prepared. The EFSF will be finished in three years. We can not go back to the status quo ante.”