This would ensure that bondholders do not receive funds from European taxpayers whilst a rescue programme is still ongoing, thereby making them responsible for their own actions. If a country is still cut off from the capital markets following a rescue programme, then a bail-in may be carried out, meaning a haircut at the expense of the original creditors.
Second, the Bundesbank’s proposals seek to end the across-the-board zero weighting of government bonds, giving them an equity capital advantage, in order to reflect the different risk potential of the bonds of various countries on banks’ balance sheets. Third, we need an independent fiscal surveillance mechanism, as the Stability and Growth Pact has not had the impact that was originally intended.