Fiscal sustainability has become a hot topic as a result of the European sovereign debt crisis, but it matters in normal times, too. This column argues that financial sector reforms are essential to ensure fiscal sustainability in the future. Although emerging market reforms undertaken in the aftermath of the financial crises of the 1990s were beneficial, complacency is not warranted. In the US, political gridlock must be overcome to reform entitlements and the tax system. In the Eurozone, creating a sovereign debt restructuring mechanism should be a priority.
Willem Buiter, 10 January 2014
Ashoka Mody, 07 January 2014
On 19 October 2010, Angela Merkel and Nicolas Sarkozy agreed that in future, sovereign bailouts from the European Stability Mechanism would require that losses be imposed on private creditors. This agreement was blamed for the increase in sovereign spreads in late 2010 and early 2011. This column discusses recent research on the market reaction to the surprise announcement at Deauville. With the exception of Greece, the rise in spreads was within the range of variability established in the previous 20 days.
Ugo Panizza, 03 March 2013
Can we avoid delayed sovereign defaults? This column sketches out a flexible mechanism focused on the international lender, and competition between lenders, of last resort to ensure timeliness, transparency and larger sums than are currently available. The threat of competition should provide strong incentives for addressing imbalances in the governance of the main multilateral financial institutions
Ugo Panizza, 02 March 2013
Policymakers charged with sovereign debt restructuring would do well to take an engineer’s approach: know what’s broken, and know exactly what your solution aims to fix. This column argues that Europe may yet face several complex sovereign defaults and, like engineers, in dealing with these defaults we must find a way to avoid characteristically panicked policymaking.