Sovereign Bankruptcy in the European Union in the Comparative Perspective
AbstractThis paper distinguishes four alternative sovereign debt resolution mechanisms: pure market solutions, modified market solutions, crisis lending by the IMF and other institutions, and the proposed Sovereign Debt Restructuring Mechanism (SDRM). It is hard to find--at the general level of analysis--the unique advantages of SDRM. The assessment of the European Stabilization Mechanism will ultimately depend on its operation, especially whether it will be a tool of subsidizing countries in debt distress or an instrument of fiscal crisis lending. The present fiscal problems in the eurozone are due to the erosion of fiscal discipline and not to the lack of strong compensatory transfers within the eurozone. The right model to look at the conditions for the stability of the eurozone is not a single state but the gold standard-type system, a system of sovereign states with a (de facto) single currency. Based on this analogy and considering modern developments, three types of measures are needed to safeguard the stability of the eurozone: (1) measures that would reduce the procyclicality of the macroeconomic policies and of the economy; (2) reforms that would help the eurozone economies grow out of increased public debt; and (3) steps to increase the flexibility of the economy so that it can deal with the future shocks in a better way.
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Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP10-18.
Date of creation: Dec 2010
Date of revision:
Debt Resolution; European Union; Eurozone; Financial Crisis; SDRM;
Find related papers by JEL classification:
- F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
- F00 - International Economics - - General - - - General
- F55 - International Economics - - International Relations and International Political Economy - - - International Institutional Arrangements
- H6 - Public Economics - - National Budget, Deficit, and Debt
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