I found this one, from New York Times,
source
Not very explanatory I'm afraid...
E.U. Rift on Plan for Handling Crises
By STEPHEN CASTLE
Published: October 29, 2010
BRUSSELS — Agreeing to make changes to their governing treaty, European Union leaders decided Friday to create a permanent system to handle future sovereign debt crises for the years after 2013, when the €750 billion safety net thrown together this year expires.
But even as they did so a rift emerged between economically-strong countries, like Germany, that insist private bond holders should share the pain of any future restructuring, and weaker ones like Spain — backed by the President of the European Central Bank — who worry that such rules could set off a fresh market panic.
Europe is still struggling to recover from a debt crisis prompted by concerns over Greece. That crisis spread to several other members, but was eventually contained by the bailout fund.
Determined to build the principle of moral hazard into the new system, Germany, Europe’s biggest economy, is actively pushing for a system that would involve bondholders, therefore unleashing the markets in hopes they would help to exert pressure on more spendthrift nations. But how to construct such a system without scaring investors away from debt issued by weaker nations in the short and medium term — thereby risking the stability of the euro — has emerged as an acute problem.
During the two-day meeting of E.U. leaders in Brussels, the president of the European Central Bank, Jean-Claude Trichet, argued that in several previous restructuring exercises around the world, the private sector did not see the value of the bonds it held reduced, according to several officials speaking on customary conditions of anonymity.
Mr. Trichet also suggested that some E.U. countries underestimated the extent to which the financial crisis had perturbed markets and made weaker countries vulnerable to destabilizing pronouncements, like the one that could throw into question the quality of the bonds a country had issued.
E.U. leaders did little to hide the sharp divergence of views when the meeting ended Friday. ‘We do have differing approaches,” the German chancellor, Angela Merkel, said.
“The president of the European Central Bank has the view that he wants to do everything to ensure that markets take a calm view of the euro zone,” Mrs. Merkel said. “We are also interested in that, but we also have to keep in mind our people, who have a justified desire to see that it’s not just taxpayers who are on the hook, but also private investors.”
“I don’t quite share Jean-Claude Trichet’s concern,” she added.
The French president, Nicolas Sarkozy, played down reports that he clashed with Mr. Trichet over the issue. “To say that I was irritated is wrong,” he said, “but I don’t think we can be told that we are not aware of the seriousness of the situation when I see the courage, the boldness, of decisions taken by the Greek government, the Spanish government, the Portuguese government, by the Irish government, by each and every one of us.”
The Spanish Prime Minister, José Luis Rodríguez Zapatero, however, defended the stance taken by Mr. Trichet. “We have to be prudent enough to listen carefully to the E.C.B.,” he said after the meetings. “We are close to those who would be very cautious before including in the mechanism the private sector. This message alone is risky.”
Any decision to touch bondholders was “a very difficult question that has to be addressed very cautiously,” added the prime minister of Luxembourg, Jean-Claude Juncker.
Philip Gisdakis, head of credit strategy in Munich for UniCredit, said that while it was in the interest of taxpayers to end bailouts, the practical obstacles were significant.
“If you look at it in detail, the markets appear to be quite fragile.” The problem, Mr. Gisdakis added, is “how to draw the thin line — this time we will bail you out but we are not going to do it again.”
In May, Mrs. Merkel reluctantly helped create a temporary crisis fund for the euro zone and, to make this permanent when its mandate expires in 2013, Mrs. Merkel said she required a change in the Lisbon Treaty, which governs how the E.U. operates, to satisfy Germany’s constitutional court.
On Friday, the E.U. leaders agreed on the need for a “limited” change in the treaty but shelved Mrs. Merkel’s idea of stripping spendthrift nations of their E.U. voting rights. Germany argues that, because no euro zone country is supposed to be bailed out by another, changes to the treaty would be needed to avoid constitutional challenges to the creation of a permanent crisis fund.
Herman Van Rompuy, president of the European Council, where national governments meet, will report back in December. But most diplomats expect him to recommend that the E.U. use a shortcut procedure that allows for a technical change to the treaty but which would not require a referendum by the citizens of separate E.U. nations.
The leaders also approved a set of tougher budget rules, designed by their finance ministers, which included new sanctions against euro-zone states that fail to keep deficits and debt in check, and demand earlier warnings over asset bubbles and declining competitiveness.
The toughest task now falls to the European Commission which must design the new, permanent crisis resolution mechanism to deal with sovereign debt emergencies. It will examine “the role of the private sector, the role of the International Monetary Fund and the very strong conditionality under which such programs should operate,” said a communiqué at the conclusion of the meeting. The clause of the E.U. treaty that bans the bailout of individual countries will not be scrapped.
Officials insisted that the new system would apply only to new debt issued by countries.
Daniel Gros, director of the Center for European Policy Studies, said that the E.U. needed to break out of a Catch-22 situation. “Because we have the crisis we cannot ask creditors to participate and because we don’t ask them to participate the crisis continues,” he said.
Mrs. Merkel’s position seemed to be closely in line with that of Axel A. Weber, president of the German Bundesbank. Mr. Weber told a dinner audience in Frankfurt on Thursday that it should be clear to bond investors that “the next time there is a problem, they should be part of the solution rather than part of the problem.” Bondholders should be part of talks on how to deal with a future sovereign debt crisis, he said. In response to a question, he said, “So far the only ones who have paid for the solution are the taxpayers.”
Mr. Weber emphasized that he was not suggesting that any current debt be restructured. But he said it created false incentives for government leaders and investors if countries that manage their finances poorly pay only slightly more interest on their debt than responsible countries. “Naturally the market will demand higher premiums from countries that have less solid finances.”
A member of the E.C.B.’s governing council, Mr. Weber is regarded as a leading candidate to succeed Mr. Trichet next year. Mr. Weber has already split with Mr. Trichet and other members of the council by repeatedly criticizing the central bank’s decision in May to buy European government debt. The purchases were designed to stabilize bond markets.
The E.C.B. declined to comment on the debate and would not confirm whether Mr. Trichet took the position attributed to him by Mrs. Merkel and others.
But Mr. Gisdakis of UniCredit said it was likely that Mr. Trichet feared that talk of making bondholders share the pain could unsettle markets, making it more difficult for the E.C.B. to raise the funds needed to provide the vast amounts cash it has provided European banks during the financial crisis.
“I can fully understand that the E.C.B. is not very happy to have this debate resurface right now,” Mr. Gisdakis said. “If you want to exit, you need to maintain a certain confidence in the market.”
Jack Ewing reported from Frankfurt. James Kanter contributed from Brussels.