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Ramifications of Debt Restructuring on the Euro Area: The Example of Large European Economies' Exposure to Greece

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  • Ansgar Belke
  • Christian Dreger

Abstract

The Greek government budget situation plays a central role in the debt crisis in the euro area. The debt to GDP ratio is above 150 percent, while the deficit to GDP ratio exceeds 10 percent. To re-establish the Maastricht criteria, respectively, strong consolidation measures need to be implemented, with potential adverse effects on the Greek economy, and further credit requirements. Therefore, a debt conversion might become a reasonable alternative. The aim of this paper is to provide some simulation-based calculations on the expected fiscal costs for the governments in the large European countries Germany, France, Spain and Italy arising from different policy options - among them a potential second Greek rescue package. Under realistic conditions, a debt conversion may be the less costly strategy for Greece and the euro area partner states. A value-added of these calculations lies in a potential transfer to smaller euro area member countries.

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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1141.

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Length: 21 p.
Date of creation: 2011
Date of revision:
Handle: RePEc:diw:diwwpp:dp1141

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Keywords: Euro area debt crisis; debt conversation; Greece;

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  1. Jeremy Bulow & Kenneth Rogoff, 1998. "Sovereign Debt: Is to Forgive to Forget," Levine's Working Paper Archive 209, David K. Levine.
  2. Juan J. Cruces & Christoph Trebesch, 2013. "Sovereign Defaults: The Price of Haircuts," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(3), pages 85-117, July.
  3. Ansgar Belke, 2010. "How Much Fiscal Backing Must the ECB Have? – The Euro Area is not the Philippines," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0184, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  4. Georgios P. Kouretas & Prodromos Vlamis, 2010. "The Greek Crisis: Causes and Implications," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(4), pages 391-404, December.
  5. Hans-Werner Sinn, 2011. "Target-Salden, Außenhandel und Geldschöpfung," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(09), pages 23-25, 05.
  6. R. Gaston Gelos, Ratna Sahay and Guido Sandleris, 2008. "Sovereign Borrowing by Developing Countries: What Determines Market Access?," Business School Working Papers, Universidad Torcuato Di Tella 2008-02, Universidad Torcuato Di Tella.
  7. Gaston Gelos & Guido Sandleris & Ratna Sahay, 2004. "Sovereign Borrowing by Developing Countries," IMF Working Papers 04/221, International Monetary Fund.
  8. Eduardo Borensztein & Ugo Panizza, 2008. "The Costs of Sovereign Default," IMF Working Papers 08/238, International Monetary Fund.
  9. Jeffrey D. Sachs, 1989. "Developing Country Debt and Economic Performance, Volume 1: The International Financial System," NBER Books, National Bureau of Economic Research, Inc, number sach89-1.
  10. Mayer, Thomas & Gros, Daniel, 2011. "Debt reduction without default?," CEPS Papers, Centre for European Policy Studies 4150, Centre for European Policy Studies.
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Cited by:
  1. Daly, Hounaida & Smida, Mounir, 2013. "La coordination des politiques monétaire et budgétaire: Aperçu théorique
    [Coordination of monetary and fiscal policies: Theoretical Overview]
    ," MPRA Paper 48066, University Library of Munich, Germany.
  2. Daly, Hounaida & Smida, Mounir, 2013. "Interaction entre politique monétaire et politique budgétaire:Cas de la Grèce
    [Fiscal and Monetary Policy Interactions : The Greece Case]
    ," MPRA Paper 45931, University Library of Munich, Germany.
  3. Ansgar Belke & Florian Verheyen, 2012. "Doomsday for the Euro Area: Causes, Variants and Consequences of Breakup," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 1(1), pages 1-15, July.
  4. Waltraud Schelkle, 2012. "European Fiscal Union: From Monetary Back Door to Parliamentary Main Entrance," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 13(1), pages 28-34, 04.

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