IDEAS home Printed from https://ideas.repec.org/p/bre/wpaper/788.html
   My bibliography  Save this paper

Sovereign debt and its restructuring framework in the euro area

Author

Listed:
  • Ashoka Mody

Abstract

To compensate for the inflexibility of fixed exchange rates, the euro area needs flexibility through a system of orderly debt restructuring. With virtually no room for macroeconomic manoeuvring since the crisis onset, fiscal austerity has been the main instrument for achieving reductions in public debt levels; but because austerity also weakens growth, public debt ratios have barely budged. Austerity has also implied continued high private debt ratios. And these debt burdens have perpetuated economic stasis. Economic theory,history, and the recent experience all call for a principled debt restructuring mechanism as an integral element of the euro area’s design. Sovereign debt should be recognised as equity (a residual claim on the sovereign), operationalised by the automatic lowering of the debt burden upon the breach of contractually-specified thresholds. Making debt more equity-like is also the way forward for speedy private deleveraging. This debt-equity swap principle is a needed shock absorber for the future but will also serve as the principle to deal with the overhang of ‘legacy’ debt.

Suggested Citation

  • Ashoka Mody, 2013. "Sovereign debt and its restructuring framework in the euro area," Working Papers 788, Bruegel.
  • Handle: RePEc:bre:wpaper:788
    as

    Download full text from publisher

    File URL: http://bruegel.org/wp-content/uploads/imported/publications/WP_2013_05.pdf
    Download Restriction: no

    Citations

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


    Cited by:

    1. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2017. "Heterogeneity in the debt-growth nexus: Evidence from EMU countries," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 470-486.
    2. Ernesto Longobardi & Antonio Pedone, 2016. "On some recent proposals of public debt restructuring in the Eurozone," SERIES 06-2016, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Sep 2016.
    3. 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.
    4. Nicolas Carnot & Stéphanie Pamies Sumner, 2017. "GDP-linked Bonds: Some Simulations on EU Countries," European Economy - Discussion Papers 2015 - 073, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Consiglio, Andrea & Zenios, Stavros A., 2015. "The Case for Contingent Convertible Debt for Sovereignst," Working Papers 15-13, University of Pennsylvania, Wharton School, Weiss Center.
    6. Julian Schumacher & Christoph Trebesch & Henrik Enderlein, 2015. "What Explains Sovereign Debt Litigation?," CESifo Working Paper Series 5319, CESifo Group Munich.
    7. Brooke, Martin & Pienkowski, Alex & Mendes, Rhys & Santor, Eric, 2013. "Financial Stability Paper No 27: Sovereign Default and State-Contingent Debt," Bank of England Financial Stability Papers 27, Bank of England.
    8. Fuest, Clemens & Heinemann, Friedrich & Schröder, Christoph, 2014. "A viable insolvency procedure for sovereigns (VIPS) in the euro area," ZEW Discussion Papers 14-053, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. Trebesch, Christoph, 2015. "Kurzgutachten zu Staatsschuldenkrisen," Working Papers 06/2015, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    10. Mathias Dolls & Clemens Fuest & Friedrich Heinemann & Andreas Peichl, 2016. "Editor's Choice Reconciling Insurance with Market Discipline: a Blueprint for a European Fiscal Union," CESifo Economic Studies, CESifo, vol. 62(2), pages 210-231.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bre:wpaper:788. 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: (Bruegel). General contact details of provider: http://edirc.repec.org/data/bruegbe.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.