- Associated Press - Sunday, November 28, 2010

BRUSSELS (AP) — A permanent mechanism to solve future debt crises in the eurozone should force losses on private investors “only on a case-by-case basis,” the European Commission proposed on Sunday.

As EU finance ministers prepared to approve Ireland’s bailout, the European Union executive suggested new rules and guidelines to replace from 2013 the current 750 billion euro ($1 trillion) backstop for the 16 countries that use the euro.

However, the proposal falls short of demands from Germany, which pushed for a stricter involvement of private creditors such as banks and hedge funds as it strives to protect its taxpayers from the costs of foreign bailouts.

Analysts have blamed Germany’s call for investors to share in the burden of rescues for the recent deterioration in market confidence in the eurozone. Ireland’s bailout was due to be announced Sunday, and borrowing costs have risen for other weak countries, particularly Portugal.

The commission’s proposed new crisis mechanism would be “largely based” on the existing backstop, but it would not automatically include the private sector, an EU official said. Potential losses for investors would be “evaluated on a case-by-case basis,” said the official. The official spoke on condition of anonymity because of the sensitivity of the issue.

EU governments agreed to discuss the proposal at an emergency meeting of EU finance ministers Sunday rather than wait until their summit in December. The agreement followed talks between EU officials; Jean-Claude Trichet, head of the European Central Bank; and EU leaders including Germany’s Angela Merkel, France’s Nicolas Sarkozy and Italy’s Silvio Berlusconi.

The finance ministers were in Brussels to sign off on a 85 billion euro ($113 billion) rescue loan for Ireland following weeks of market turbulence that weakened the common currency and drove up borrowing costs for the bloc’s highly indebted countries.

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