The panic in the European periphery eased a but as Irish bonds rallied sharply after finance ministers issued a statement that current debt would not be included in burden sharing in the event of a sovereign restructuring.    The FT writes,

“We are clear that this does not apply to any outstanding debt and any programme under current instruments,” the British, French, German, Italian and Spanish finance ministers said in the statement released at the G20 summit in Seoul. Brian Lenihan, Irish finance minister, said the statement clarified “earlier ambiguities and doubts that were sown” by European leaders when they decided two weeks ago to reopen the European Union’s treaties to create a new bail-out system for future Greek-style implosions.

Angela Merkel, the German chancellor, has insisted the new system put more of a burden on private investors to pay for a future bail-out. The system would not be in place until 2013, but the markets had interpreted Ms Merkel’s hardline stance as a shift in sentiment that would force even current bondholders to take “haircuts” if Ireland or other “peripheral” EU economies needed to be rescued.

According to a European official familiar with deliberations in Seoul, the statement was put together after market turbulence led to “nervousness on the German side” that their tough stance was making Ireland’s position increasingly desperate.

Below is French Finance Minister Christine Lagarde’s interview, in which she discusses “bailing in” debt holders as opposed to bailing them out.  The interview was done on November 10th and contributed to the recent market turbulence.