European Central Bank Governing Council member Jens Weidmann Friday suggested that automatic debt maturity extensions should be included in collective action clauses to be triggered once a country received support aid from the ESM bailout fund.
Weidmann, who also heads the German Bundesbank, stressed that in the absence of further political integration, the framework of the Maastricht Treaty should be strengthened.
“First and foremost this means that citizens are liable for the public debt of their country and in then that investors bear the consequences of their own investment decisions,” Weidmann said.
In this context, Weidmann welcomed the introduction of collective action clauses in the euro area bond issues but argued that further steps may be necessary.
“According to a proposal by the Bundesbank, emission conditions of euro area sovereign bonds could include an automatic lengthening of debt maturity by three years should the country receive aid from the ESM bailout fund,” Weidmann said.
Such an automatic extensions could give a country breathing space to solve its problems without private creditors withdrawing, Weidmann suggested. “This would bring control and liability into better balance” while significantly reducing the scope of needed financial support, Weidman said