Professor Peter Bofinger, one of the five "Wise Men" on the German Council of Economic Advisers, has warned that a new German plan to impose "haircuts" on holders of eurozone sovereign debt risks sparking an unstoppable European bond crisis and may force Portugal and Spain to restore their own currencies, adding "its the fastest way to break up the eurozone. If I were a politician in Portugal, I would want my own currency as fast as possible: that is the only way to avoid going bankrupt". This sovereign "bail-in" matches the controversial "bail-in" rule for bank bondholders, which came into force in January and has contributed to the dramatic sell-off in eurozone bank assets this year. Bofinger also said in a separate statement that the plan could become self-fulfilling all to quickly, igniting a "bond run" as investors dump their holdings to avoid a haircut, with Portugal, Italy and Spain powerless to defend themselves since they no longer have their own monetary instruments, thereby causing a "dangerous confidence crisis".
Professor Peter Bofinger, one of the five "Wise Men" on the German Council of Economic Advisers, has warned that a new German plan to impose "haircuts" on holders of eurozone sovereign debt risks sparking an unstoppable European bond crisis and may force Italy and Spain to restore their own currencies, adding "its the fastest way to break up the eurozone. If I were a politician in Italy, I would want my own currency as fast as possible: that is the only way to avoid going bankrupt". This sovereign "bail-in" matches the controversial "bail-in" rule for bank bondholders, which came into force in January and has contributed to the dramatic sell-off in eurozone bank assets this year. Bofinger also said in a separate statement that the plan could become self-fulfilling all to quickly, igniting a "bond run" as investors dump their holdings to avoid a haircut, with Italy, Portugal and Spain powerless to defend themselves since they no longer have their own monetary instruments, thereby causing a "dangerous confidence crisis".