BRUSSELS (Reuters) – Euro zone states may ditch plans to impose losses on private bondholders should countries need to restructure their debt under a new bailout fund due to launch in mid-2013, four EU officials told Reuters on Friday.

Discussions are taking place against a backdrop of flagging market confidence in the region’s debt and as part of wider negotiations over introducing stricter fiscal rules to the EU treaty.

Euro zone powerhouse Germany is insisting on tighter budgets and private sector involvement (PSI) in bailouts as a precondition for deeper economic integration among euro zone countries.

Commercial banks and insurance companies are still expected to take a hit on their holdings of Greek sovereign bonds as part of the second bailout package being finalised for Athens.

But clauses relating to PSI in the statutes of the European Stability Mechanism (ESM) – the permanent facility scheduled to start operating from July 2013 – could be withdrawn, with the majority of euro zone states now opposed to them.

The concern is that forcing the private sector bondholders to take losses if a country restructures its debt is undermining confidence in euro zone sovereign bonds. If those stipulations are removed, most countries in the euro zone argue, market sentiment might improve.

“France, Italy, Spain and all the peripherals” are in favour of removing the clauses, one EU official told Reuters. “Against it are Germany, Finland and the Netherlands.” Austria is also opposed, another source said.

BRUSSELS (Reuters) – Euro zone states may ditch plans to impose losses on private bondholders should countries need to restructure their debt under a new bailout fund due to launch in mid-2013, four EU officials told Reuters on Friday.

Discussions are taking place against a backdrop of flagging market confidence in the region’s debt and as part of wider negotiations over introducing stricter fiscal rules to the EU treaty.

Euro zone powerhouse Germany is insisting on tighter budgets

and private sector involvement (PSI) in bailouts as a precondition for deeper economic integration among euro zone countries.

Commercial banks and insurance companies are still expected to take a hit on their holdings of Greek sovereign bonds as part of the second bailout package being finalized for Athens.

But clauses relating to PSI in the statutes of the European Stability Mechanism (ESM) – the permanent facility scheduled to start operating from July 2013 – could be withdrawn, with the majority of euro zone states now opposed to them.

The concern is that forcing the private sector bondholders to take losses if a country restructures its debt is undermining confidence in euro zone sovereign bonds. If those stipulations are removed, most countries in the euro zone argue, market sentiment might improve.

BRUSSELS (Reuters) – Euro zone member states, mindful of flagging market confidence in euro zone debt, are considering dropping private sector involvement in the region’s permanent bailout fund due to come into force in 2013, four EU officials said on Friday.

The discussions are taking place as part of wider negotiations over changing the EU treaty to introduce stricter fiscal rules, which Germany insists on as a precondition for deeper integration among euro zone states.

Commercial banks and insurance companies are expected to take a hit on their holdings of Greek sovereign bonds as part of the second bailout package being finalized for Athens.

But clauses relating to private sector involvement contained in the statutes of the European Stability Mechanism (ESM) – the permanent facility scheduled to start operating from mid-2013 – could be withdrawn, with the majority of euro zone states opposed to them.

The concern is that forcing the private sector to take losses if a country needs to restructure its debt is undermining market confidence in euro zone sovereign bonds. If clauses on private sector involvement are removed, most countries argue, market sentiment might improve.

“France, Italy, Spain and all the peripherals” are in favor of removing the clauses, one EU official told Reuters. “Against it are Germany, Finland and the Netherlands.”

Another official said that while German insistence on retaining private sector involvement in the ESM was fading, so-called collective action clauses would only be removed as part of broader negotiations over changes to the EU treaty.

BRUSSELS (Reuters) – Euro zone member states, mindful of flagging market confidence in euro zone debt, are considering dropping private sector involvement in the region’s permanent bailout fund due to come into force in 2013, four EU officials said on Friday.

The discussions are taking place as part of wider negotiations over changing the EU treaty to introduce stricter fiscal rules, which Germany insists on as a precondition for deeper integration among euro zone states.

Commercial banks and insurance companies are expected to take a hit on their holdings of Greek sovereign bonds as part of the second bailout package being finalised for Athens.

But clauses relating to private sector involvement contained in the statutes of the European Stability Mechanism (ESM) – the permanent facility scheduled to start operating from mid-2013 – could be withdrawn, with the majority of euro zone states opposed to them.

The concern is that forcing the private sector to take losses if a country needs to restructure its debt is undermining market confidence in euro zone sovereign bonds. If clauses on private sector involvement are removed, most countries argue, market sentiment might improve.

“France, Italy, Spain and all the peripherals” are in favour of removing the clauses, one EU official told Reuters. “Against it are Germany, Finland and the Netherlands.”

Another official said that while German insistence on retaining private sector involvement in the ESM was fading, so-called collective action clauses would only be removed as part of broader negotiations over changes to the EU treaty.

BRUSSELS (Reuters) – Wednesday’s failed bond auction in Germany may mark the moment the penny dropped for Berlin. That, at least, is the hope of some of its European partners.

While Greece, Ireland and Portugal have had to suffer the ignominy of taking bailouts from the EU and IMF, and Spain, Italy and France are now firmly in the firing line, Europe’s most powerful economy has remained above the fray.

But the inability to sell nearly 40 percent of the bonds offered at an auction of 10-year Bunds has suddenly revealed a chink in Germany’s armour, with implications not just for the markets, but for the politics of Europe’s debt crisis too.

At one level the auction was not so bad — no other euro zone country can sell 10-year debt at a yield below 2 percent in the current environment, and if a few more basis points had been offered the 6 billion euros of bonds would have sold without a hitch — but at other levels, deep problems lurk.

The very image of German debt management superiority has been called into question, and by extension so have some of the more rigid positions that German Chancellor Angela Merkel has adopted over the course of the debt unrest.

Other euro zone states — most particularly France — will now feel emboldened in challenging Germany’s resistance to ideas such as the European Central Bank playing a more direct role in firefighting the crisis and to jointly issued euro zone bonds.

French President Nicolas Sarkozy met Merkel and newly appointed Italian Prime Minister Mario Monti in the French city of Strasbourg on Thursday, with the ECB’s role at the heart of discussions.

BRUSSELS (Reuters) – Wednesday’s failed bond auction in Germany may mark the moment the penny dropped for Berlin. That, at least, is the hope of some of its European partners.

While Greece, Ireland and Portugal have had to suffer the ignominy of taking bailouts from the EU and IMF, and Spain, Italy and France are now firmly in the firing line, Europe’s most powerful economy has remained above the fray.

But the inability to sell nearly 40 percent of the bonds offered at an auction of 10-year Bunds has suddenly revealed a chink in Germany’s armor, with implications not just for the markets, but for the politics of Europe’s debt crisis too.

At one level the auction was not so bad — no other euro zone country can sell 10-year debt at a yield below 2 percent in the current environment, and if a few more basis points had been offered the 6 billion euros of bonds would have sold without a hitch — but at other levels, deep problems lurk.

The very image of German debt management superiority has been called into question, and by extension so have some of the more rigid positions that German Chancellor Angela Merkel has adopted over the course of the debt unrest.

Other euro zone states — most particularly France — will now feel emboldened in challenging Germany’s resistance to ideas such as the European Central Bank playing a more direct role in firefighting the crisis and to jointly issued euro zone bonds.

French President Nicolas Sarkozy met Merkel and newly appointed Italian Prime Minister Mario Monti in the French city of Strasbourg on Thursday, with the ECB’s role at the heart of discussions.

BRUSSELS (Reuters) – President Barack Obama will offer what guidance he can on how to resolve the European debt crisis when he meets the EU’s top officials at a summit in Washington next week, the U.S. ambassador to the EU said on Tuesday.

Obama will hold talks with European Council President Herman Van Rompuy, who represents the EU’s 27 member states, and Jose Manuel Barroso, the president of the European Commission, during the one-day summit on November 28.

The discussions will focus on the sovereign debt crisis in the euro zone, which over the past two years has hit Greece, Ireland and Portugal and now threatens Spain, Italy and France, three of the euro zone’s four largest economies.

“We fully expect that when President Obama sits down with presidents Van Rompuy and Barroso, there will be a lot of discussion about this because it affects us all so profoundly,” U.S. Ambassador William Kennard told reporters.

“The outcome of this crisis is pretty unpredictable, I think that’s fair to say. We have offered our advice and counsel and I hope it’s been helpful.”

During the G20 summit in Cannes on November 3-4, Obama joined a small group of EU leaders, including German Chancellor Angela Merkel and French President Nicolas Sarkozy, for talks on the crisis, which is having an increasingly debilitating impact on the global economy and on U.S. financial markets.

At that meeting, Obama and his treasury secretary, Timothy Geithner, received a first-hand account of the depth and intensity of Europe’s problems and offered some guidance on how the United States handled its banking and subprime mortgage crisis during 2008 and 2009.

BRUSSELS (Reuters) – Darwinian principles should apply in the euro zone and the rule of survival of the fittest prevail, with the strongest economies having the leading say in how the bloc is run, Finland’s Europe Minister Alex Stubb said on Thursday.

Setting out his argument for the euro zone’s six triple-A rated countries to have more influence in the region’s economic management, Stubb said the 13-year-old currency needed to look to its strongest members to secure the future.

“We’ve been looking at the whole debate from the wrong end, we’ve been looking at countries that we need to save and help all the time,” he told Reuters in an interview.

“For me, the euro is a Darwinist system, it is the survival of the fittest. The markets take care of that, and I think that’s the best way we can keep up market pressure,” said Stubb, who is himself a fitness fanatic and frequently completing Ironman triathlons.

Finland’s former foreign minister, who wrote his doctoral thesis on differentiated integration in the euro zone, said the triple-A stamp granted by credit rating agencies to those countries with the best public finances was the benchmark all countries in the euro zone should be aiming for.

Only a combination of intense market pressure and internal political pressure could ensure that the 11 non triple-A countries using the euro met their obligations by trimming their budget deficits and reducing their debts.

“It should be the triple-A countries that basically, not dictate the rules, but at least have a strong say, because why would we listen to countries that are not taking care of their own public finances?” he asked.

BRUSSELS (Reuters) – If there are two words causing quiet alarm across the European Union right now – beyond the turmoil already convulsing the countries that share the euro – they are “treaty change”.

They may not carry the same drama as “bond market mayhem”, but the very idea of altering the fundamental laws underpinning the European Union so soon after they were agreed runs the risk of shaking the 50-year-old European project to its core and may end up exacerbating the sovereign debt crisis.

German Chancellor Angela Merkel has been the most forthright of Europe’s leaders in calling for changes to the Lisbon Treaty, arguing that amendments are necessary if there is to be more rapid integration and greater stability in the euro zone. The changes she is seeking include much stricter sanctions on countries that miss budget deficit targets.

“It is time for a breakthrough to a new Europe,” she said in Berlin last week, emphasising that the survival of the EU depended on being able to amend its treaty, even though it took eight years to negotiate and came into force only two years ago.

“A community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules, that community simply can’t survive. I’m convinced of this.”

As has often been the case during the crisis, France has supported Germany, saying treaty change is necessary, although Paris has hinted at much deeper and more fundamental changes than Berlin wants. The European Commission, the EU’s executive, is behind the need for limited changes, although it has caveats too.

“Any revision of the treaty is for deeper integration of the euro area but also for a stronger European Union,” Commission President Jose Manuel Barroso told the European Parliament on Wednesday, a bid to keep the process inclusive of all 27 countries in the EU, not just the 17 in the euro zone.

BRUSSELS (Reuters) – If there are two words causing quiet alarm across the European Union right now – beyond the turmoil already convulsing the countries that share the euro – they are “treaty change”.

They may not carry the same drama as “bond market mayhem”, but the very idea of altering the fundamental laws underpinning the European Union so soon after they were agreed runs the risk of shaking the 50-year-old European project to its core and may end up exacerbating the sovereign debt crisis.

German Chancellor Angela Merkel has been the most forthright of Europe’s leaders in calling for changes to the Lisbon Treaty, arguing that amendments are necessary if there is to be more rapid integration and greater stability in the euro zone. The changes she is seeking include much stricter sanctions on countries that miss budget deficit targets.

“It is time for a breakthrough to a new Europe,” she said in Berlin last week, emphasizing that the survival of the EU depended on being able to amend its treaty, even though it took eight years to negotiate and came into force only two years ago.

“A community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules, that community simply can’t survive. I’m convinced of this.”

As has often been the case during the crisis, France has supported Germany, saying treaty change is necessary, although Paris has hinted at much deeper and more fundamental changes than Berlin wants. The European Commission, the EU’s executive, is behind the need for limited changes, although it has caveats too.

“Any revision of the treaty is for deeper integration of the euro area but also for a stronger European Union,” Commission President Jose Manuel Barroso told the European Parliament on Wednesday, a bid to keep the process inclusive of all 27 countries in the EU, not just the 17 in the euro zone.