Merkel:EU needs courage to make investors share risk
* Merkel digs in on private investor involvement
* Says politicians must prevail over markets
By Stephen Brown
BERLIN, Nov 24 (Reuters) - German Chancellor Angela Merkel said on Wednesday European politicians needed the "courage" to make private investors share in the risk of future debt crises in the euro zone and show financial markets who is in charge.
"Have politicians got the courage to make those who earn money share in the risk as well? Or is dealing in government debt the only business in the world economy that involves no risk?" Merkel said in a speech to the German parliament.
"This is about the primacy of politics, this is about the limits of the markets," said the chancellor, acknowledging that her insistence on this issue was making markets "nervous".
The centre-right German leader is blamed by some in Europe for provoking the recent Irish debt sell-off by saying private euro-zone bondholders must be made to share the risk of future sovereign debt crises via a permanent euro crisis mechanism.
She sparked fresh selling of the euro on Tuesday by saying it was in an "exceptionally serious" situation. [ID:nBAT005787]
This prompted one European Central Bank policymaker, Ewald Nowotny, to voice irritation at Merkel for not "differentiating between the euro as a currency and the problems of individual (eurozone) states". [ID:nVIE003584]
Merkel and Finance Minister Wolfgang Schaeuble have repeated in recent weeks that private investors must be involved in a new crisis mechanism for the euro zone to take effect from mid-2013, when the current mechanism lapses.
A German government paper seen by Reuters, which Berlin wants to serve as the basis for discussion in Brussels, said private investors should face "haircuts" or other debt payment restructuring measures.
Private-sector creditors like banks and financial investors should be drawn in by attaching collective action clauses (CACs) to all newly-issued euro zone bonds, said the paper.
The new mechanism would succeed the European Financial Stability Facility (EFSF), a safety net created after Greece's debt crisis rocked the euro zone earlier this year. Merkel said she had a "positive" view on Ireland taking up this mechanism.
She faced loud criticism for delaying an aid package for Greece while insisting on deeper austerity measures, finally agreeing to it days before signing up to the much bigger EFSF.
Merkel has said repeatedly that the "the best European" is not necessary the one who helps other member countries first, but who takes action to strengthen the euro longer-term.
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