France and Germany At Loggerheads Over Bailout Issues

October 21 00:00 2011

New York, Oct 21 ( – The world is pitting its hopes on France and Germany to avert a Euro crisis and save the world another economic downturn. However, it is interesting to know that there are a lot of internal issues between France and Germany. Two of the strongest economies in Europe are still undecided about a lot of issues. Any major disagreement with regards to these issues has the potential to throw the European Financial Stability Fund (EFSF) into jeopardy. Some of the important issues have been listed down below:

Haircut issue

With a Greek default inevitable, it is now the turn to decide who is in a position to take the biggest hits. Germany has been adamant that private sector lenders be forced to take the biggest haircut at about 60% of their investment. Meanwhile, France argues saying that a crisis of confidence and pan European debt collapse would occur. France pegs the haircut at 30% to 50% for private investors.

Recapitalization Issue

France is of the opinion that EFSF be used to recapitalize some of the weak European banks. Germany is completely against it and looks at this as only a measure of last resort. According to Berlin this creates a moral hazard. Sovereign funds should not be risked for private gains.