Dutch Step Up Call for Eurozone Debt Writedown Rules

The Netherlands is demanding that private investors face mandatory debt writedowns in future eurozone bailouts, a position that will fuel arguments as countries spar over the next phase of integration in the single currency bloc.

Wopke Hoekstra, the Dutch finance minister, said imposing haircuts on private creditors was “essential” to protect eurozone taxpayers from paying to rescue bankrupt governments and introduce greater market discipline on high debt economies, Yahoo reported.

“It is essential if things go wrong. You are asking the individuals or the companies that own a country’s bonds to pay part of the bill,” Hoekstra said. “That is absolutely fair if you are asking the citizens of countries to do burden-sharing.”

Greece is the only eurozone member state to be forced into a private sector haircut, undergoing the biggest debt restructuring in history in 2012.

Plans for a “sovereign debt restructuring mechanism” in the eurozone have gathered momentum after being set out by outgoing German Finance Minister Wolfgang Schauble last September. The demand is also enshrined in the Netherland’s coalition agreement struck last year.

However, the prospect of having investors take losses on eurozone debt—usually considered an ultra-safe financial asset—has raised the hackles of some big eurozone member states. France’s finance minister last month said any automatic writedown mechanism was a “red line” for Paris because it would stoke market turmoil and further the cause of Eurosceptic populists.

Italy, the eurozone’s third-largest economy, is also seen as opposing the debt restructuring plans. It has the highest debt-to-GDP ratio in the euroland after Greece and a domestic banking system heavily exposed to the fate of the Italian government.

But Hoekstra said there was now a “substantial group” of eurozone countries that were ready to accept that debt haircuts had to be part of the single currency’s rule book.

“Of course there are different views across the eurozone. I’ve listened carefully to what the others said and there is quite a substantial group who see this part of the future solution,” he said.

Austria and Finland are also in the Dutch camp. A possible compromise could include the eurozone having a system that does not automatically force investors to take losses when a country needs a bailout but instead triggers mediated talks between eurozone authorities and creditors.

The debt restructuring ideas are part of broader discussions about how governments should strengthen the eurozone’s crisis-fighting tools and forge deeper integration, starting with the EU’s banking union project.