Eurozone bailout plan draft requires burden sharing

LONDON (ShareCast) - Eurozone countries facing bank sector collapse will still have to shoulder a large part of the burden alongside the region's rescue funds, according to a draft of the ESM (European Stability Mechanism) proposal published yesterday by Financial Times (FT).

The draft requires struggling countries to invest along with the ESM and thus calls into question the ability to break the link between governments and their failed banks because, according to the report, it doesn't contemplate direct capitalization by the Eurozone rescue fund.

According to the FT, the European Commission's proposal would force countries that can afford it to inject their own national funds into their failing banks before receiving financial assistance from the ESM. If it were deemed that the country would become insolvent from providing a bailout, the government in question would still have to indemnify the ESM for any losses.

JM