LUXEMBOURG (Reuters) – European Union governments on Friday agreed new rules that would make it easier to restructure euro zone sovereign bonds in the event of a financial crisis, two EU officials told Reuters.
The measure would be applicable to bonds issued from 2022 and with maturities above one year, the officials said. The changes to EU rules are included in the revised treaty of the European Stability Mechanism, the euro zone rescue fund.
The text was agreed by EU finance ministers on Friday but will not be published until guidelines on how to interpret some of its provisions are agreed by EU governments, a process that is likely to take until December, the sources said.
The measure that favours debt restructuring and haircuts is known as “single-limb aggregated voting”. When applied, it will allow decisions over bond restructuring to encompass all bonds issued by a state.
Existing clauses in euro zone bond contracts require separate restructurings for each bond issuance, making it easier for bondholders to block haircuts, or value reductions.
By helping prevent hold-outs from blocking a deal, the reform is designed to speed up the resolution of debt crises.
But critics are concerned it could increase yields on bonds of governments with high debt, as they would be perceived by investors as at greater risk of being restructured.
EU officials have said the measures would be largely neutral on most countries.