EU bailout plans to hit bondholders

The EU plans to make private lenders cover the losses of any future eurozone debt crisis, which will have a knock-on effect on government bond yields.

Details of the proposed European Stability Mechanism obtained by the BBC reveal Brussels may require a crisis-stricken eurozone government to force losses on its existing private lenders, including investors in government bonds, before it would provide a bailout package. From June 2013, government bonds will also have to include 'collective action clauses'. This would make it much easier for an insolvent government to get the consent of its lenders to any future debt write-offs. Together, the changes mean a government's private-sector lenders will face a much bigger risk of losing the...