“There is evidence – we looked at that very carefully – that the introduction of such CACs does not have any negative impact on bond markets,” the head of the ESM Klaus Regling has said.
Neither should the ESM’s role as a mediator in case of a debt restructuring make such an event more likely. The ESM can only act on the request of the government in question and on an “informal, non-binding, temporary, and confidential basis,” according to the proposed change.
Some Italian critics argue the very mention of debt restructuring for private investors — so-called private sector involvement — in the ESM treaty could trigger market panic. The ESM treaty does contain a paragraph which says:
“In exceptional cases an adequate and proportionate form of private sector involvement, in accordance with IMF practice, shall be considered in cases where stability support is provided accompanied by conditionality in the form of a macro-economic adjustment program.”
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