scholarly journals An Outline of a Progressive Resolution to the Euro-Area Sovereign Debt Overhang: How a Five-Year Suspension of the Debt Burden Could Overthrow Austerity

2014 ◽  
Author(s):  
Dimitris P Sotiropoulos ◽  
John Milios ◽  
Spyros Lapatsioras
Keyword(s):  
Euro Area ◽  
Sovereign Debt ◽  
Debt Overhang ◽  
Debt Burden

Eurobonds: Three Lessons from China’s “Debt Centralization/Decentralization” Experience

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Zhiyong An
Keyword(s):  
Moral Hazard ◽  
Euro Area ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Budget Constraint ◽  
Sovereign Debt Crisis ◽  
The European Union ◽  
Member States ◽  
Institutional Mechanism ◽  
Previous Series

Abstract Eurobonds, dubbed as Coronabonds in the context of the current coronavirus crisis, are being hotly debated among the euro area member states amid the COVID-19 pandemic. The debate is in many ways a retread of the euro area sovereign debt crisis of 2011–2012. As China’s “debt centralization/decentralization” experience is comparable with the introduction of Eurobonds in the European Union (EU) in terms of institutional mechanism design, we review our previous series of studies of China’s “debt centralization/decentralization” experience to shed some light on the Eurobonds debate. We obtain three key lessons. First, the introduction of Eurobonds in EU is likely to soften the budget constraint of the governments of the euro area member states. Second, it is also likely to strengthen the moral hazard incentives of the governments of the euro area member states to intentionally overstate their budget problems. Finally, the magnitudes of the moral hazard effects generated by the introduction of Eurobonds in EU are likely larger than their respective counterparts in China.

Suturing the Open Veins of Ecuador: Debt, Default and Democracy

2009 ◽  
Vol 2 (1) ◽  
Author(s):  
Wade Mansell ◽  
Karen Openshaw
Keyword(s):  
Economic History ◽  
Sovereign Debt ◽  
Legal Aspects ◽  
Debt Burden ◽  
Legal Implications ◽  
Audit Commission ◽  
Obvious Benefit ◽  
The Government ◽  
Large Discount ◽  
Interest Payments

In 2008 the Ecuadorian government received a report on the legitimacy of the country's sovereign debt from an international audit commission appointed by Ecuador's current president, Rafael Correa. This concluded that much of the debt was tainted by illegality and illegitimacy and consequently did not merit repayment. Citing the report's findings as justification, the government stopped making interest payments on certain of the country's bonds, but, rather than repudiating them altogether, engineered a successful buyback at a large discount. Having thus reduced Ecuador's external commercial debt burden by about a third, the government is now planning to address multilateral and bilateral loans also adjudged unlawful by the commission.This article examines the robust approach adopted by the Correa administration to tackling Ecuador's public debts, placing it in the context of the country's troubled economic history and contrasting it with previous defaults and debt workouts which largely worked to Ecuador's disadvantage. In doing so, it considers the use which the government has made of the increasingly prominent concepts of odious and illegitimate debt as a means of combating the indebtedness of the South. The conclusion reached is that, regardless of the final position suggested by international law, the realities of international relations are likely to limit the practicality of legal remedies. Nevertheless, the case of Ecuador provides a new chapter in the continuing academic debate regarding unlawful debt.These, of course, are the legal aspects of Ecuador's endeavours to curtail expenditure desperately needed for other purposes. Underlying the legal implications is the reality of an impoverished nation called upon to continue to service or redeem 'debt' that brought no obvious benefit to the overwhelming majority of its people. Debt repayment has promoted impoverishment and also, if indirectly, facilitated devastating environmental degradation.

scholarly journals The Debt Overhang Hypothesis: Evidence from Pakistan

2016 ◽  
Vol 11 (1) ◽  
pp. 140-151 ◽  
Author(s):  
Muhammad Imran Shah ◽  
Irfan Ullah ◽  
Zia Ur Rahman ◽  
Nadeem Jan
Keyword(s):  
Economic Growth ◽  
Dynamic Behaviour ◽  
Negative Impact ◽  
Labour Force ◽  
External Debt ◽  
Unit Roots ◽  
Debt Overhang ◽  
Debt Burden ◽  
Long Run ◽  
Domestic Labour

AbstractThis study investigates the debt overhang hypothesis for Pakistan in the period 1960-2007. The study examines empirically the dynamic behaviour of GDP, debt services, the employed labour force and investment using the time series concepts of unit roots, cointegration, error correlation and causality. Our findings suggest that debt-servicing has a negative impact on the productivity of both labour and capital, and that in turn has adversely affected economic growth. By severely constraining the ability of the country to service debt, this lends support to the debt-overhang hypothesis in Pakistan. The long run relation between debt services and economic growth implies that future increases in output will drain away in form of high debt service payments to lender country as external debt acts like a tax on output. More specifically, foreign creditors will benefit more from the rise in productivity than will domestic producers and labour. This suggests that domestic labour and capital are the ultimate losers from this heavy debt burden.

Solidarity and Responsibility in the Euro Area: Foes or Friends?

2018 ◽  
Vol 15 (1) ◽  
Author(s):  
Andrea Fracasso
Keyword(s):  
Risk Reduction ◽  
Euro Area ◽  
Sovereign Debt ◽  
Risk Sharing ◽  
Multiple Equilibria ◽  
Lender Of Last Resort ◽  
Short Article ◽  
Viable Solution ◽  
Correct Sequence ◽  
Default Risks

Abstract The recent debate on the reform of the economic governance in the euro area has been marred by a stark disagreement on the correct sequence between risk-reduction (responsibility) and risk-sharing (solidarity). In fact, the dichotomy between risk-reduction and risk-sharing may be fallacious as they reinforce each other, particularly in a monetary union with no lender of last resort for the public sector and no common macroeconomic stabilization mechanisms. The lack of risk-sharing mechanisms is per se a major source of redenomination and default risks and thus it makes the euro area prone to financial market segmentation along national borders and ultimately weaker. At the same time, greater structural convergence has to be achieved through structural reforms and fiscal prudence in order to reduce the likelihood of future negative idiosyncratic shocks in currently vulnerable countries. Notwithstanding some progress towards a politically viable solution encompassing both responsibility and solidarity, a number of important issues remain controversial. This short article summarizes the debate and introduces some of these controversial issues, ranging from the correct role of market discipline when markets are prone to self-fulfilling prophecies and multiple equilibria, to the (dis)advantages of sovereign debt restructuring mechanisms based on rules rather than discretion, from the pros and cons of new safe assets in the euro area to the primacy of coping with debt legacy problems, and the like.

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