On Friday at the G20 summit, finance ministers of France, Germany, Italy, Spain, and Britain issued a joint statement saying the holders of any existing euro zone government debt are safe from regulatory changes that would force them to take on additional losses.

Peripheral European sovereign debt and the euro currency rallied modestly on this news.

In the past two weeks, sovereign debt woes flared up again as the euro currency slumped against the U.S. dollar and  the spread between the bonds of Germany and peripheral European countries widened to record levels.

Peripheral Europe's sovereign debt problems are well known. 

The debt level is astronomically high and the recently imposed austerity measures may hurt economic growth and at the same time be not steep enough to reduce debt to manageable levels. 

Another problem, particularly for Ireland, is the staggering burden of bailing out and guaranteeing the liabilities of frail banking system.

However, what triggered the recent crisis in confidence was France and Germany's push for private investors to share the burden of future bailouts.  In other words, they're asking sovereign bonder holders to take on more losses.

This spooked the market as some investors were expecting European taxpayers to always foot the bill and bought peripheral European debt only because of that expectation.

Now, as rising borrowing costs threaten countries like Ireland and Portugal and raise the specter of defaults, European politicians, French and German ones included, are backtracking.

The joint statement said whatever future bailout mechanisms that could hurt private bond holders will not apply to any outstanding debt and any programme under current instruments.

They will only come into effect after mid-2013 with no impact whatsoever on the current arrangements.

The finance minister also reminded market participants that the European Financial Stability Facility (EFSF), the current financial aid mechanism, requires no private sector involvement. 

Email Hao Li in New York at hao.li@ibtimes.com.