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The EU Architecture to Avert a Sovereign Debt Crisis

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  • Rodrigo Olivares-Caminal

Abstract

This paper analyses what has been the EU institutional reaction to the Euro-area sovereign debt problems, focusing in particular on the new architecture designed to avert a financial crisis. It analyses i) the European Financial Stabilisation Mechanism (EFSM), an EU financial assistance feature available to all 27 member states; ii) the European Financial Stabilisation Facility (EFSF), a temporary credit-enhanced Special Purpose Vehicle (SPV) with minimal capitalisation created to raise funds from the capital markets (via an investment grade rating) and to provide financial assistance to distressed euroarea Member States (EAMS) at comparatively lower interest rates; and iii) the European Stability Mechanism (ESM), an intergovernmental organisation under public international law. Finally, some concluding remarks are provided.

Suggested Citation

  • Rodrigo Olivares-Caminal, 2012. "The EU Architecture to Avert a Sovereign Debt Crisis," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2011(2), pages 167-197.
    • Handle: RePEc:oec:dafkad:5k9cswmzvbhh
    DOI: 10.1787/fmt-2011-5k9cswmzvbhh
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    2. Charles W. Calomiris, 1998. "The IMF's Imprudent Role As Lender of Last Resort," Cato Journal, Cato Journal, Cato Institute, vol. 17(3), pages 275-294, Winter.
    3. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall.
    4. repec:rnp:ecopol:09111 is not listed on IDEAS
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
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    Cited by:

    1. Carlo Domenico Mottura & Luca Passalacqua, 2013. "Default dependence structure effects on the valuation of government guarantees," Departmental Working Papers of Economics - University 'Roma Tre' 0177, Department of Economics - University Roma Tre.
    2. Clemens Fuest & Friedrich Heinemann & Christoph Schröder, 2016. "A Viable Insolvency Procedure for Sovereigns in the Euro Area," Journal of Common Market Studies, Wiley Blackwell, vol. 54(2), pages 301-317, March.
    3. Cuadros-Solas, Pedro Jesús & Salvador Muñoz, Carlos, 2022. "Disentangling the sources of sovereign rating adjustments: An examination of changes in rating policies following the GFC," Research in International Business and Finance, Elsevier, vol. 59(C).

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