Piero Ghezzi, 23 June 2012

€100 billion in fresh support to the Spanish government failed to calm markets; private investors asked for even higher risk premiums on Spanish bonds. Conventional wisdom is that this reaction reflects the way any new official debt – which gets paid off first in case of distress – harms private debt holders. This column challenges this subordination logic and argues that Spain’s latest bank bailout announcement actually increased the value of privately held Spanish sovereign debt..

Daniel Gros, 05 December 2010

Despite its large size relative to the small Irish economy, last weekend’s bailout is not working. Risk premiums continue to rise. This column argues that part of the problem lies in a seemingly innocuous provision in the rescue facility that is to replace the current European Financial Stability Facility in 2013. The argument is tricky, but the heart of the problem is the insistence that rescue financing be senior to private debt while simultaneously ruling out rescheduling of short-term debt.

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