Advanced Search
MyIDEAS: Login to save this paper or follow this series

Trichet Bonds to Resolve the European Sovereign Debt Problem

Contents:

Author Info

  • Nicholas Economides
  • Roy C. Smith

Abstract

We propose the creation of “Trichet Bonds” as a comprehensive solution to the current sovereign debt crisis in the EU area. “Trichet Bonds,” to be named after the ECB president Jean-Claude Trichet, will be similar to “Brady Bonds” that resolved the Latin American debt crisis in the late 1980s and were named after the then Treasury Secretary Nicholas Brady. Like the Brady Bonds, Trichet Bonds will be new long-duration bonds issued by countries in the EU area that will be collateralized by zero-coupon bonds of the same duration issued by the ECB. The zero-coupon bonds will be sold by the ECB to the countries issuing Trichet Bonds, which will be offered in exchange for outstanding sovereign debt of the countries. The exchange is offered at market value, so current debt holders will experience a “haircut” from par value, and thus the exchange does not involve a “bailout.” However, present holders of sovereign debt will be exchanging low quality bonds with limited liquidity, for higher quality bonds with greater liquidity. Debt holders not accepting the exchange will be at risk of a forced restructuring at a later date at terms less favorable. The effect of the exchange offer, if a threshold of approximately 70% approve it, is to replace old debt with a lesser amount of new debt with longer maturities. The creation of Trichet bonds will result in various advantages both in comparison to the present unstable situation and other proposed solutions. First, the long duration of Trichet bonds will eliminate the immediate crisis caused by short term expiration of significant amounts of debt which is looming over Greece, Ireland, Portugal, Spain and possibly other EU countries. Second, the guarantee of the principal with the zero-coupon ECD bond collateral increases the quality of the Trichet Bonds compared to existing sovereign debt. Third, the market for the new Trichet Bonds will be liquid and likely to trade at appreciating prices as refinancing (roll-o

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.stern.nyu.edu/networks/Economides-Smith_Trichet_Bonds.pdf
Download Restriction: no

Bibliographic Info

Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 11-05.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:ste:nystbu:11-05

Contact details of provider:
Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Christian Bauer & Bernhard Herz & Alexandra Hild, 2011. "Structured Eurobonds," Research Papers in Economics 2011-09, University of Trier, Department of Economics.
  2. Ojo, Marianne, 2011. "Capital, liquidity standards and macro prudential policy tools in financial supervision: addressing sovereign debt problems," MPRA Paper 44616, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ste:nystbu:11-05. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Viveca Licata).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.