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 European Macroeconomics & Governance Tags & Topics

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, Secretary General, German Council of Economic Advisors

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

Andritzky IMG

Jochen Andritzky

Secretary General, German Council of Economic Advisors

Feld IMG

Lars Feld

Member, German Council of Economic Experts

Zsolt Darvas

Zsolt Darvas

Senior Fellow

Guntram B. Wolff

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 about event

Past Event

Past Event

Brexit and trade: what EU and WTO rules imply

Bruegel in collaboration with Leuven Centre For Global Governance Studies organizes an event at which we will discuss the options for redesigning trade relations in the post-Brexit era.

Speakers: Viktoria Dendrinou, Hosuk Lee-Makiyama, Petros C. Mavroidis, André Sapir and Prof. Jan Wouters Topic: European Macroeconomics & Governance, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: February 6, 2017
Read article More on this topic More by this author

Blog Post

Silvia Merler

Is Germany a currency manipulator?

What’s at stake: the Financial Times reports that Peter Navarro, head of the US’s National Trade Council, has accused Germany of currency manipulation. He claims that the country uses a 'grossly undervalued' Euro to 'exploit' its trading partners. Angela Merkel replied that the Euro is managed by the European Central Bank, on which Germany does not exert influence. We review what the economic blogosphere thinks of this.

By: Silvia Merler Topic: Global Economics & Governance Date: February 6, 2017
Read about event More on this topic

Past Event

Past Event

State Aid and Tax Rulings

When do national tax rulings violate EU state aid rules? Does the European Commission's approach raise concerns about Member State Sovereignity and what is the impact on corporate investments in Europe?

Speakers: Clemens Fuest, Damien Neven, Gert-Jan Koopman, Nicole Robins and Guntram B. Wolff Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: February 1, 2017
Read about event More on this topic

Past Event

Past Event

Europe’s growth champion: will Poland’s success continue?

An event at which Marcin Piatkowski will present the key messages from a book on Poland that he is writing for Oxford University Press.

Speakers: Dan Bucşa, Maria Demertzis, Alexander Lehmann, Marcin Piatkowski and Paweł Samecki Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 31, 2017
Read about event More on this topic

Past Event

Past Event

Achieving inclusive growth: what have we learnt?

Inclusive growth has been the exception globally, and will be a greater challenge in the future. Achieving it has to be central to our agenda, but requires rethinking and reprioritisation.

Speakers: Tharman Shanmugaratnam and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 26, 2017
Read about event More on this topic

Past Event

Past Event

Why are think tanks more important now than ever before?

Video And audio recording A number of campaigns fought in 2016 would appear to have been won or lost on evidence and analysis that did not stand up to scrutiny. Indeed, the very nature of ‘factual’ information was undermined with large parts of the public unwilling to accept conventional positions on matters of global import. […]

Speakers: Matt Dann, Sophie Gaston, Dr. Corinna Hörst, Dr. Olena Prystayko and Paweł Świeboda Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 26, 2017
Read about event More on this topic

Past Event

Past Event

The future of EU trade policy

We are happy to welcome the European Commissioner for Trade Cecilia Malmström to Bruegel on 24 January to talk about the future of the EU's trade policy.

Speakers: David Bremmer, Cecilia Malmström and André Sapir Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 24, 2017
Read about event More on this topic

Past Event

Past Event

Implications of the new US trade policy by the incoming president Trump

An event about the implications of Donald Trump's emerging trade agenda on global trade.

Speakers: Adam Posen, André Sapir, Guntram B. Wolff and Xiang Yu Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 19, 2017
Read about event More on this topic

Past Event

Past Event

Debt restructuring through better insolvency standards

What potential to revive European enterprises?

Speakers: Catherine Bridge Zoller, Philip Hertz, Alexander Lehmann, Sarah Paterson and Andreas Stein Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 18, 2017
Read about event More on this topic

Past Event

Past Event

Can migration work for all in Europe?

On 9 January Bruegel together with the IMF organized a conference on migration and whether it can work for all in Europe.

Speakers: Michał Boni, Gianpiero Dalla Zuanna, Maria Demertzis, Samuel Engblom, Antje Gerstein, Anna Ilyina, David Lipton, Stefano Scarpetta, Alessandra Venturini and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 9, 2017
Read article More on this topic More by this author

External Publication

9781785369315-thumb

EU economic governance: euro area periphery lessons for Central and Eastern European countries

An analysis of macroecnomic developments shows that Central and Eastern European (CEE) EU member states fared much better in the aftermath of the crisis compared to euro-area periphery countries. Furthermore, they have a better chance to avoid the problems that the euro-periphery countries faced before the crisis.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: December 9, 2016
Read article More on this topic More by this author

Blog Post

Marek Dabrowski

Challenges to debt sustainability in advanced economies

The gross general government debt-to-GDP ratios in many advanced economies have reached the highest levels in peacetime history and continue to grow, putting into question sovereign solvency in these economies.

By: Marek Dabrowski Topic: European Macroeconomics & Governance Date: December 8, 2016
Load more posts