International lending, sovereign debt and joint liability : an economic theory model for amending the treaty of Lisbon
AbstractAs the Eurozone crisis drags on, it is evident that a part of the problem lies in the architecture of debt and its liabilities within the Eurozone and, more generally, the European Union. This paper argues that a large part of the problem can be mitigated by permitting appropriately-structured cross-country liability for sovereign debt incurred by individual nations within the European Union. In brief, the paper makes a case for amending the Treaty of Lisbon. The case is established by constructing a game-theoretic model and demonstrating that there exist self-fulfilling equilibria, which would come into existence if cross-country debt liability were permitted and which are Pareto superior to the existing outcome.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 6555.
Date of creation: 01 Aug 2013
Date of revision:
Debt Markets; Access to Finance; Banks&Banking Reform; Bankruptcy and Resolution of Financial Distress; Economic Theory&Research;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-10 (All new papers)
- NEP-EEC-2013-08-10 (European Economics)
- NEP-OPM-2013-08-10 (Open Economy Macroeconomics)
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