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The political economy of euro area sovereign debt restructuring

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  • Friedrich Heinemann

    (ZEW Mannheim
    University of Heidelberg)

Abstract

The establishment of a sovereign debt restructuring mechanism (SDRM) is one of the important issues in the academic debate on a viable constitution for the European Monetary Union (EMU). Yet the topic seems to be taboo in official reform contributions to the debate. Against this backdrop, the article identifies the SDRM interests of key players, including the European Commission, the European Parliament, the European Central Bank and national governments. The empirical section takes advantage of the recently established EMU Positions Database. The findings confirm political economy expectations: Low-debt countries support an EMU constitution that includes an insolvency procedure whereas a coalition of high-debt countries and European institutions oppose it. The analysis points towards a possible political-economic equilibrium for coping with sovereign insolvencies: an institutional set-up without an SDRM and with hidden transfers. Recent European fiscal innovations in response to the Covid-19 solvency shock confirm this prediction.

Suggested Citation

  • Friedrich Heinemann, 2021. "The political economy of euro area sovereign debt restructuring," Constitutional Political Economy, Springer, vol. 32(4), pages 502-522, December.
    • Handle: RePEc:kap:copoec:v:32:y:2021:i:4:d:10.1007_s10602-021-09327-9
    DOI: 10.1007/s10602-021-09327-9
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    Cited by:

    1. Blesse, Sebastian & Bordignon, Massimo & Boyer, Pierre C. & Carapella, Piergiorgio & Heinemann, Friedrich & Janeba, Eckhard & Raj, Anasuya, 2021. "The future of the European fiscal union: Survey results from members of national parliaments in France, Italy and Germany," ZEW Discussion Papers 21-055, ZEW - Leibniz Centre for European Economic Research.
    2. Florian Dorn & Clemens Fuest & Friedrich Heinemann & Margit Schratzenstaller & Michael Thöne & Peter Becker & Christian Waldhoff & Christian Neumeier & Katarina Barley & Daniel Freund & Florian Neumei, 2021. "Coronavirus Recovery Plan: Test of Cohesion in the EU?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 74(02), pages 03-30, February.
    3. Heinemann Friedrich & Kemper Jan, 2021. "The ECB Under the Threat of Fiscal Dominance – The Individual Central Banker Dimension," The Economists' Voice, De Gruyter, vol. 18(1), pages 5-30, December.

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    More about this item

    Keywords

    Sovereign debt restructuring mechanism; Banking regulation; EMU reform; Fiscal union;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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