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Debt restructuring in the euro area- A necessary but manageable evil?

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  • Zsolt Darvas

Abstract

There are two possible responses to the Greek debt crisis: 'Plan A', continued official lending, for as long as needed, with possible voluntary private sector involvement, and 'Plan B', coercive pre-emptive or post-default restructuring with significant face value reduction in privately-held debt. Both options have risks, but it is necessary to move to Plan B sooner or later. The impact on Greece could be mitigated by foreign bank ownership and proper liquidity support measures. The direct spillover impact on the rest of the euro area seems small. But there is the risk of contagion, which is a serious concern. There is a cautious case for delaying somewhat Plan B in order to prepare for it.
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Suggested Citation

  • Zsolt Darvas, 2011. "Debt restructuring in the euro area- A necessary but manageable evil?," Bruegel Policy Contributions 567, Bruegel.
    • Handle: RePEc:bre:polcon:567
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    References listed on IDEAS

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    Cited by:

    1. Zsolt Darvas, 2012. "The euro crisis- ten roots, but fewer solutions," Bruegel Policy Contributions 755, Bruegel.
    2. repec:onb:oenbwp:y:2011:i:4:b:2 is not listed on IDEAS
    3. Sylvia Gloggnitzer & Isabella Lindner, 2011. "Economic Governance Reform and Financial Stabilization in the EU and in the Eurosystem – Treaty-Based and Intergovernmental Decisions," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 36-58.
    4. Guntram B. Wolff, 2011. "Changing of the guard - Challenges ahead for the new ECB president," Bruegel Policy Contributions 600, Bruegel.

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    More about this item

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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