The Quest for a European Safe Asset—A Comparative Legal Analysis of Sovereign Bond-Backed Securities, E-Bonds, Purple Bonds, and Coronabonds

2020 ◽  
Vol 6 (2) ◽  
pp. 233-269 ◽  
Author(s):  
Sebastian Grund
Keyword(s):  
Sovereign Debt ◽  
Dispute Settlement ◽  
Debt Crisis ◽  
Legal Analysis ◽  
Design Elements ◽  
Sovereign Bond ◽  
Legal Perspective ◽  
Policy Objectives ◽  
Legal Constraints ◽  
Governing Law

Abstract The European sovereign debt crisis and, more recently, the COVID-19 pandemic have revealed the European Economic and Monetary Union’s fragility, which essentially emanates from the inherent tension between a single monetary policy and decentralized fiscal policies. To cushion economic and financial shocks and sever the sovereign-bank doom loop, different proposals to create a common public debt security have been put forward, although none of them has so far seen the light of day. Building on pertinent economic and finance scholarship, this article reviews four promising safe asset proposals from a legal perspective: Sovereign bond-backed securities (SBBS), E-bonds, Purple bonds, and Coronabonds. Rather than focusing on their feasibility under EU law or national constitutional law, this article compares the proposals from an investor perspective against the backdrop of the following formal and functional legal characteristics that render assets ‘safe’: governing law, dispute settlement forum, investor protection, and investor representation in sovereign debt restructurings. Against this backdrop, targeted recommendations on critical design elements of safe assets, with the aim of reconciling the economic policy objectives with the pertinent legal constraints, are advanced.

scholarly journals The Impact of the Introduction of Uniform European Collective Action Clauses on European Government Bonds as a Regulatory Result of the European Sovereign Debt Crisis

2020 ◽  
Vol 14 (1) ◽  
pp. 1
Author(s):  
Nicoletta Layher ◽  
Eyden Samunderu
Keyword(s):  
European Union ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
The European Union ◽  
Bond Yields ◽  
Member States ◽  
Sovereign Bond ◽  
European Sovereign Debt Crisis ◽  
Collective Action Clauses

This paper conducts an empirical study on the inclusion of uniform European Collective Action Clauses (CACs) in sovereign bond contracts issued from member states of the European Union, introduced as a regulatory result of the European sovereign debt crisis. The study focuses on the reaction of sovereign bond yields from European Union member states with the inclusion of the new regulation in the European Union. A two-stage least squares regression analysis is adopted in order to determine the extent of impact effects of CACs on member states sovereign bond yields. Evidence is found that CACs in the European Union are priced on financial markets and that sovereign bond yields do respond to the inclusion of uniform CACs in the European Union.

Sovereign Defaults Before Domestic Courts

2018 ◽  
Author(s):  
Kupelyants Hayk
Keyword(s):  
New York ◽  
Sovereign Debt ◽  
Relative Ease ◽  
Sovereign Bond ◽  
Sovereign Bonds ◽  
State Immunity ◽  
Domestic Courts ◽  
Sovereign Defaults ◽  
Governing Law

The monograph examines sovereign debt litigation before the English and New York courts. English and New York courts are the two main jurisdictions customarily chosen to resolve sovereign debt disputes. The book sets out parties’ litigation choices at various stages of proceedings and provides the legal background against which parties to a sovereign bond may wish to negotiate. The defining characteristic of the monograph is that it examines sovereign debt litigation through the prism of private law. The monograph clearly grounds its analysis in the law as it exists, rather than purely policy-oriented reasoning (albeit it keeps a critical eye on the reasoning of the courts). The monograph concentrates on diverse litigation tactics and arbitrage strategies available to bondholders and sovereign debtors that appear before the English courts. In most cases, private creditors may obtain summary judgments with relative ease. That said, often serious issues arise at the stages of assumption of jurisdiction, determination of the governing law of sovereign bonds or substantive resolution of the claims in English proceedings. Similarly, the enforcement of sovereign bonds against the assets of the sovereign often presents serious obstacles, most significantly the doctrine of State immunity. The book offers an exhaustive account of litigation tactics available to bondholders and sovereign debtors alike. The book is unique in the breadth of its coverage. It examines issues of jurisdiction and choice of law at the preliminary stages of litigation, substantive challenges of various sorts to sovereign debt restructurings and to the repayment of bonds on merits, and enforcement of final judgments against the State and its assets in the post-judgment phase.

Sovereign Defaults Before Domestic Courts

2018 ◽  
Author(s):  
Hayk Kupelyants
Keyword(s):  
New York ◽  
Sovereign Debt ◽  
Relative Ease ◽  
Sovereign Bond ◽  
Sovereign Bonds ◽  
State Immunity ◽  
Domestic Courts ◽  
Sovereign Defaults ◽  
Governing Law

The monograph examines sovereign debt litigation before the English and New York courts. English and New York courts are the two main jurisdictions customarily chosen to resolve sovereign debt disputes. The book sets out parties’ litigation choices at various stages of proceedings and provides the legal background against which parties to a sovereign bond may wish to negotiate. The defining characteristic of the monograph is that it examines sovereign debt litigation through the prism of private law. The monograph clearly grounds its analysis in the law as it exists, rather than purely policy-oriented reasoning (albeit it keeps a critical eye on the reasoning of the courts). The monograph concentrates on diverse litigation tactics and arbitrage strategies available to bondholders and sovereign debtors that appear before the English courts. In most cases, private creditors may obtain summary judgments with relative ease. That said, often serious issues arise at the stages of assumption of jurisdiction, determination of the governing law of sovereign bonds or substantive resolution of the claims in English proceedings. Similarly, the enforcement of sovereign bonds against the assets of the sovereign often presents serious obstacles, most significantly the doctrine of State immunity. The book offers an exhaustive account of litigation tactics available to bondholders and sovereign debtors alike. The book is unique in the breadth of its coverage. It examines issues of jurisdiction and choice of law at the preliminary stages of litigation, substantive challenges of various sorts to sovereign debt restructurings and to the repayment of bonds on merits, and enforcement of final judgments against the State and its assets in the post-judgment phase.

scholarly journals When Governments Promise to Prioritize Public Debt: Do Markets Care?

2020 ◽  
Vol 6 (1) ◽  
pp. 41-74
Author(s):  
Mitu Gulati ◽  
Ugo Panizza ◽  
W Mark C Weidemaier ◽  
Gracie Willingham
Keyword(s):  
Public Debt ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
Bond Yields ◽  
Borrowing Costs ◽  
Absolute Priority ◽  
Sovereign Bond ◽  
European Sovereign Debt Crisis ◽  
The Us

Abstract During the European sovereign debt crisis of 2011–13, some nations faced with rising borrowing costs adopted commitments to treat bondholders as priority claimants. That is, if there were a shortage of funds, bondholders would be paid first. In this article, we analyse the prevalence and variety of these types of commitments and ask whether they impact borrowing costs. We examine a reform that was widely touted at the height of the Euro sovereign debt crisis in 2011, in which Spain enshrined in its constitution a strong commitment to give absolute priority to public debt claimants. We find no evidence that this reform had any impact on Spanish sovereign bond yields. By contrast, our examination of the US Commonwealth of Puerto Rico suggests that constitutional priority promises can have an impact, at least where the borrower government is subject to supervening law and legal institutions.

Mispricing of Risk in Sovereign Bond Markets with Asymmetric Information

2016 ◽  
Vol 17 (4) ◽  
pp. 491-511 ◽  
Author(s):  
Benedikt Mihm
Keyword(s):  
Asymmetric Information ◽  
Default Risk ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Fiscal Sustainability ◽  
Bond Prices ◽  
Sovereign Bond ◽  
European Sovereign Debt Crisis ◽  
The Government ◽  
Sovereign Bond Markets

Abstract The likelihood that a government will repay its sovereign debt depends both on the amount of debt it issues and on the government’s future ability to repay. Whilst the former is publicly observable, the government may have more information about the latter than investors. This paper shows that this asymmetric information problem impairs the market’s ability to differentiate economies according to their fiscal sustainability, and can lead to a disconnect between bond prices and default risk. The model can help rationalise the behaviour of Eurozone bond prices prior to the recent European sovereign debt crisis.

Measuring redenomination risks in the Euro area – evidence from survey data

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jens Klose
Keyword(s):  
Survey Data ◽  
Monetary Union ◽  
Euro Area ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Yield Spreads ◽  
Content Type ◽  
Sovereign Bond ◽  
Distributed Lag ◽  
Bond Yield

Purpose This paper aims to introduce a new indicator to measure redenomination risks in Euro area countries. The measure is based on survey data. The influence of this indicator in determining sovereign bond yield spreads is estimated. Design/methodology/approach An autoregressive distributed lag approach is used to estimate the effects of redenomination risks on sovereign bond yields. Additional control variables are added. Findings The results for 10 European Economic and Monetary Union (EMU) countries in the period June 2012 to May 2019 show that the risk of depreciation is almost abandoned for most Euro area countries, i.e. the former crisis countries Ireland and Portugal. If anything an appreciation may occur for some countries once they leave the EMU. The only countries facing depreciation problems once leaving the monetary union are Italy and to some extent Spain. Originality/value With this new indicator, the literature on sovereign bond determination and i.e. on redenomination risks is expanded by an additional approach. Moreover, this study is one of few also looking at the period after the most severe tensions of the sovereign debt crisis in the Euro area in 2012.

European Economies Stability Faced With Potential Outburst of Sovereign Debt Crisis. An Empirical Study Using Neural Network

2013 ◽  
Vol 12 (2) ◽  
pp. 3255-3260
Author(s):  
Stelian Stancu ◽  
Alexandra Maria Constantin
Keyword(s):  
Neural Network ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Banking System ◽  
Sovereign Debt Crisis ◽  
European Level ◽  
Continuous Growth ◽  
Economic Context ◽  
European Economies ◽  
The Impact

Instilment, on a European level, of a state incompatible with the state of stability on a macroeconomic level and in the financial-banking system lead to continuous growth of vulnerability of European economies, situated at the verge of an outburst of sovereign debt crises. In this context, the current papers main objective is to produce a study regarding the vulnerability of European economies faced with potential outburst of sovereign debt crisis, which implies quantitative analysis of the impact of sovereign debt on the sensitivity of the European Unions economies. The paper also entails the following specific objectives: completing an introduction in the current European economic context, conceptualization of the notion of “sovereign debt crisis, presenting the methodology and obtained empirical results, as well as exposition of the conclusions.

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