Past Event

Does the euro area need a sovereign insolvency mechanism?

The sovereign debt crisis shook the Euro to its foundations. It soon became clear that there was no mechanism to allow a tidy insolvency of a state wishing to remain inside the euro area. To face future crises, does the EU need a sovereign insolvency mechanism?

Date: July 12, 2016, 1:00 pm Topic: European Macroeconomics & Governance

SUmmary

See below for video and event materials.

Lars Feld and Jochen Andritzky of the German Council of Economic Experts (GCEE) presented their proposal on a sovereign debt restructuring mechanism for the euro area. It is embedded in a wider framework called “Maastricht 2.0”, which consists of three pillars: fiscal and economic policy under national responsibility; a financial framework under European responsibility; and a crisis mechanism nested in between the two.

The innovations in their proposal are a two-step timeline for restructuring sovereign debt and a gradual phase-in for the new regime. The two steps proposed for a restructuring are a quasi-automatic maturity extension followed, if necessary, by a deeper restructuring based on a debt sustainability analysis by the European Stability Mechanism (ESM). The gradual phase-in regime includes a new class of sovereign bonds, eligible for restructuring, which could be issued from next year. These would include creditor participation clauses and thereby involve a market-based approach to debt restructuring.

Zsolt Darvas acknowledged the GCEE’s report and endorsed the idea for a debt restructuring mechanism. First, he argued the advantaged of a US system, with no federally imposed fiscal rules, no bail-out, no monetary financing, but redistributive policies. He felt this would be the first best option for Europe, which means it is an optimal yet unfeasible option. Furthermore, Darvas questioned the effectiveness of the current system of fiscal rules, which are still an important element in the GCEE’s proposal. He also had doubts about the practicalities of the proposal, such as whether the quasi-automatic element in the proposal will be effective when creditors still need to give consent (market-based approach), or whether the ESM will be big enough for countries like Italy as the mechanism is conditional on an ESM program.

Guntram Wolff further wondered whether the newly issued, eligible debt can be introduced smoothly, and whether the introduction of a debt restructuring mechanism once more implies that there is no such thing as a risk-free asset. Another topic raised was the difference between market-based and statutory approaches. On this, Lars Feld replied that a statutory approach is unfeasible.

Two major points were raised in the Q&A session. First, is there room for manoeuvre on this topic without treaty change? Second, does the lack of a safe asset make such a sovereign debt restructuring mechanism unstable? On the first point, Lars Feld and Jochen Andritzky argued that there would be need for treaty change, because sovereignty is affected. On the second, they argued that stability can still be provided by single countries’ debt – the issue is rather a matter of distribution than stability. If distributional consequences are not desired, European Safe Bonds (ESBies) are a way to address this issue.

Event notes by Bennet Berger, Research Assistant

VIDEO RECORDING

 

Event materials

Presentation – Jochen Andritzky and Lars Feld

A Mechanism to Regulate Sovereign Debt Restructuring in the Euro Area – Working paper by Jochen Andritzky, Désirée I. Christofzik, Lars P. Feld, Uwe Scheuring

 

Schedule

Jul 12, 2016

12.30-13.00

Check-in and lunch

13.00-13.30

Presentation

Jochen Andritzky, Visiting fellow

Lars Feld, Member, German Council of Economic Experts

13.30-13.45

Comments

Chair: Guntram B. Wolff, Director

Zsolt Darvas, Senior Fellow

13.45-14.30

Audience discussion

14.30

End

Speakers

Jochen Andritzky

Visiting fellow

Lars Feld

Member, German Council of Economic Experts

Zsolt Darvas

Senior Fellow

Guntram B. Wolff

Director

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Bryn Watkins

Bryn Watkins

bryn.watkins@bruegel.org +32 2 227 42 88

Read article

Parliamentary Testimony

European Parliament

The role of independent expertise in legislative process

Testimony before the European Parliament Committee on the Internal Market and Consumer Protection (IMCO).

By: Zsolt Darvas and J. Scott Marcus Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: July 18, 2018
Read about event More on this topic

Past Event

Past Event

Should we revisit the patent system for pharmaceutical products?

Analysis of the legal issues with the current IP system for regulated market authorisations for pharmaceutical products, as well as its economic effects.

Speakers: Arno Hartmann, Christian Jervelund, Margaret K. Kyle, Roberto Romandini, Bruno van Pottelsberghe, Amaryllis Verhoeven and Reinhilde Veugelers Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 9, 2018
Read article More on this topic More by this author

Opinion

Griechenland braucht einen Neuanfang

This was first published by Die Zeit. Acht Jahre nach Beginn des ersten Hilfsprogramms für Griechenland ist es soweit – Griechenland soll wieder auf eigenen Füßen stehen. Die Eurogruppe soll heute das Ende des dritten Hilfsprogramms beschließen und die Modalitäten für die Zeit danach definieren. Ziel sollte es jetzt sein, einen tragfähigen Ausstieg aus dieser für alle Seiten […]

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: July 3, 2018
Read about event More on this topic

Past Event

Past Event

Trade war trinity: analysis of global consequences

Analysis of the long-term impact of the trade war and its three key players: EU, US, and China.

Speakers: Alicia García-Herrero, Ignasi Guardans and Carl B Hamilton Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 28, 2018
Read article More on this topic More by this author

Podcast

Podcast

Director's Cut: The drama of the EU and euro area

Bruegel's director, Guntram Wolff, is joined by Ashoka Mody, visiting professor in international economic policy at Princeton University to discuss topics from his latest book, Euro tragedy: a drama in nine acts.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: June 27, 2018
Read about event More on this topic

Past Event

Past Event

Euro tragedy: a drama in nine acts

This event featured a presentation by Ashoka Mody of his new book, which argues that the Euro is at the root of the problems the European Union faces today.

Speakers: Maria Demertzis, Ashoka Mody and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 27, 2018
Read about event More on this topic

Past Event

Past Event

EU-LAC Economic Forum 2018

The second edition of the EU-LAC Economic Forum, a high level gathering for in-depth research-based exchanges on economic issues between European, Latin American and Caribbean (LAC) policy makers and experts.

Speakers: Angel Badillo, Federico Bonaglia, Maria Demertzis, Sylvie Durán, Guillermo Fernández de Soto, Alicia García-Herrero, Elisa Grafulla, Gonzalo Gutiérrez, Bert Hoffmann, Juan Jung, Emilio Lamo de Espinosa, Carlos Malamud, J. Scott Marcus, Neven Mimica, Fabio Nasarre de Letosa, Detlef Nolte, Anne Sperschneider and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 26, 2018
Read article More on this topic More by this author

Blog Post

The Meseberg declaration and euro-zone reform

The recent Franco-German Meseberg declaration will set the scene for next week’s summit. We review opinions on this important agreement.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: June 25, 2018
Read article Download PDF More on this topic More by this author

Working Paper

EU financial services policy since 2007: crisis, responses and prospects

This paper presents a holistic overview and assessment of the European Union (EU)’s financial services policy since the start of its financial crisis in mid-2007. Its emphasis is on public policy initiatives and developments at the European level, including those specific to the euro area.

By: Nicolas Véron Topic: Finance & Financial Regulation Date: June 21, 2018
Read about event More on this topic

Past Event

Past Event

For a stronger and more integrated Europe

This event will feature the presentation of the Economic Survey of the European Union 2018 and Economic Survey of the Euro Area 2018.

Speakers: Angel Gurría, Zsolt Darvas, Pierre Beynet and Aida Caldera-Sanchez Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 19, 2018
Read article More on this topic More by this author

Opinion

« Mieux vaudrait laisser les gouvernements libres de tenter les politiques de leur choix »

Les peuples ont le droit de faire des erreurs: Selon l’économiste Jean Pisani-Ferry, l’Union européenne doit accepter les aspirations légitimes à des politiques disparates, tout se prémunissant contre la contagion de leur corollaire : la possibilité d’une faillite souveraine.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: June 12, 2018
Read article More on this topic

Blog Post

Is the ECB collateral framework compromising the safe-asset status of euro-area sovereign bonds?

Central banks’ collateral frameworks play an important role in defining what is considered as a safe asset. However, the ECB’s framework is unsatisfactory because it is overly reliant on pro-cyclical ratings from credit rating agencies, and because the differences in haircuts between the different ECB credit quality steps are not sufficiently gradual. In this note, the authors propose how the ECB could solve these problems and improve its collateral framework to protect its balance sheet without putting at risk the safe status of sovereign bonds of the euro area.

By: Grégory Claeys and Inês Goncalves Raposo Topic: European Macroeconomics & Governance Date: June 8, 2018
Load more posts