The Eurogroup faces a difficult choice on Greece — implementing a debt reduction plan drastic enough to make a return to market borrowing possible, or agreeing to a fourth financial assistance programme and continuing to fund Greece at the preferential lending rate.
On 19th June, we are hosting a members-only workshop on sovereign exposure limits.
Banks’ sovereign bond holdings were at the heart of the euro-sovereign crisis. The concentration of domestic bonds created a vicious cycle between governments and banks. There are several proposals to end this link, including concentration limits on southern European bonds. We argue for a uniform limit to reduce flight-to-quality effects on northern European bonds. Such a uniform limit would also be more acceptable politically.
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.
One of the consequences of the global financial crisis has been rapid growth in public debt in most advanced economies. This Policy Contribution assesses the size of public debt in advanced economies and considers the potential consequences of sovereign insolvency.
Nicolas Véron argues that EU banking union can only be complete if the vast amounts of domestic sovereign debt held by many banks are reduced
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?
Exposures of banks towards sovereigns and vice-versa may be a source of systemic risk but how far can limiting these exposures in fact enhance or rather jeopardise global stability?
Greek public debt does not look sustainable if the country has to return to market borrowing at the end of the third bail-out programme, but could be sustainable if preferential ESM funding continues in the long-term. Our advice is to offer hope for Greece in the form of delayed fiscal adjustment toward a target of 2.5% of GDP primary balance and adopt various measures to ease the debt burden, for the benefit of both Greece and its official lenders.
Sitting on a pile of debt, China’s only way out is to deleverage: more pain now for sustainable growth later.
It was inevitable that Greece would have to make cuts. Yet, if it is ever to pay back its debts, what the country needs most of all is a growth strategy.
The time is ripe to analyse in fine detail the conditions attached to the Greek programmes and to look in particular at the degree of structural reform implementation under the first and second programmes, the speed at which implementation took place, and the headings under which reforms were enacted, especially compared to the other euro-area programme countries.