A mechanism to regulate sovereign debt restructuring in the euro area

Arbeitspapier

To make the no-bailout clause credible and enhance the effectiveness of crisis assistance, a consistent institutional and legal framework is needed to ensure that private creditors contribute to crisis resolution. Getting activated as part of ESM crisis assistance, we propose a two-stage mechanism that allows to postpone the fateful distinction between liquidity and solvency crises: At the onset of a ESM programme, the framework demands an immediate maturity extension if the debt burden is high, followed by deeper debt restructuring if post-crises debt proves unsustainable. The mechanism is easily implemented by amending ESM guidelines and compelling countries to issue debt with Creditor Participation Clauses (CPCs). As debt is rolled over, the mechanism gradually phases in, leaving countries time to reduce debt. Given that private sector involvement reduces financing needs, the ESM could provide longer programmes and more time for reforms.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Arbeitspapier ; No. 04/2016

Classification and Topics

• Classification: Wirtschaft
• Subject: Öffentliche Schulden ; Haushaltskonsolidierung ; Europäischer Stabilitätsmechanismus ; Eurozone

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Andritzky, Jochen ; Christofzik, Désirée I. ; Feld, Lars P. ; Scheuering, Uwe
• Event: Veröffentlichung
• (who): Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung
• (where): Wiesbaden
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/144797
• Last update: 10.03.2025, 11:42 AM CET