Joseph Stiglitz, Hamid Rashid, 03 August 2020

From Latin America’s lost decade in the 1980s to the more recent Greek crisis, there are plenty of painful reminders of what happens when countries cannot service their debts. This column argues that a global debt crisis today would likely push millions of people into unemployment and fuel instability and violence around the world, and proposes a multilateral sovereign debt buyback facility which could be managed by the IMF.

Yothin Jinjarak, Rashad Ahmed, Sameer Nair-Desai, Weining Xin, Joshua Aizenman, 06 July 2020

There is an importance relationship between prevailing market factors and the dynamics of the COVID-19 pandemic across the euro area. This column presents evidence to suggest that during the pandemic, adjustments in euro area credit default swap spreads diverge substantially from levels implied by theoretical models. Mortality outcomes and fiscal announcements account for a proportion of this divergence. Results also imply ‘COVID dominance’, whereby the widening spreads can lead to unconventional monetary policies that primarily aim to mitigate the short-run distress of the worst economic outcomes, temporarily pushing away concerns over fiscal risk.

Silvia Marchesi, Tania Masi, 04 May 2020

As a consequence of the COVID-19 crisis, which will hit certain countries particularly hard (including those with official creditors), there may be a wave of debt restructuring over the next few years. This column argues that the specific characteristics of sovereign debt re-negotiations are important. In particular, it focuses on the link between sovereign restructurings and ratings, an issue that is of relevance but that has not received enough attention in recent research. 

Roel Beetsma, Josha van Spronsen, 24 January 2020

For the last decade, euro area countries have undertaken substantial debt issuances in order to maintain or bolster international capital market access. This column shows that the ECB's unconventional monetary policy dampens yield cycles in secondary markets for euro area sovereign debt around new debt auctions. This dampening effect tends to be larger when market volatility is higher, and this can be used to minimise any instability generated, for example, by different countries’ issuances occurring close together or the spillover effects of one country’s auctions on another. 

Orkun Saka, 06 January 2020

European banks have been criticised for holding too much domestic government debt during the recent euro area crisis, intensifying the doom loop between sovereign and bank credit risks. This column deviates from previous research that focused on 'bad' reasons for holding sovereign debt, and points to a 'good' reason: an informational advantage that particular banks have regarding sovereigns. This seems to have had a role in the fragmentation of European government bond markets. 

Sebnem Kalemli-Ozcan, 22 November 2019

Sebnem Kalemli-Özcan discusses how, ten years after the euro crisis, the deleveraging process still affects corporate investment and, ultimately, productivity and growth.

Barry Eichengreen, Asmaa El-Ganainy, Rui Esteves, Kris Mitchener, 01 April 2019

The history of sovereign debt evolved over time along with the purposes for which governments borrowed: first state building, then public-good provision, and most recently social welfare and entitlements. Although many periods when debt-to-GDP ratios rose explosively culminated in funding crises, debasements and restructurings, less widely appreciated are episodes of successful debt consolidation achieved through rapid growth or budgetary discipline. This column analyses the economic and political circumstances that made these debt consolidation episodes possible.

Pierluigi Balduzzi, Emanuele Brancati, Fabio Schiantarelli, 09 November 2018

The Italian government has decided to pursue an expansionary fiscal policy, with increased welfare spending as its focus. This column uses evidence from the 2010-2012 sovereign debt crisis to explore the potential negative effects of this policy on private investment. It finds that an increase in a bank’s credit default swap spreads leads to lower investment and employment for younger and smaller firms and in the aggregate. These findings suggest the planned fiscal expansion could substantially crowd out private investment.

Julian Schumacher, Christoph Trebesch, Henrik Enderlein, 16 July 2018

For centuries, sovereign debt was assumed to be ‘above the law’ and non-enforceable. This column shows that this is no longer the case. Building on a new dataset on sovereign debt lawsuits, it documents the erosion of sovereign immunity since the 1970s and argues that legal disputes can disrupt government access to international capital markets, as foreign courts impose a financial embargo on defaulting sovereigns. These legal developments have strengthened the hands of creditors and raised the cost of default for debtors, with far-reaching consequences for government willingness to pay and the resolution of debt crises.

Silvia Marchesi, Tania Masi, 06 July 2018

Euro area governments have just negotiated a debt relief agreement for Greece, but without face-value debt reduction. This column argues that specific characteristics of sovereign debt renegotiations have significant economic implications. When debt relief operations involve write-offs, the defaulting country benefits strongly in term of growth up to ten years after the restructuring. 

Guntram Wolff, 04 May 2018

When thinking about what will determine the prosperity and well-being of citizens living in the euro area, five issues are central. This column, part of VoxEU's Euro Area Reform debate, argues that the important CEPR Policy Insight by a team of French and German economists makes an important contribution to two of them, but leaves aside some of the most crucial ones: European public goods, a proper fiscal stance and major national reforms. It also argues that its compromise on sovereign debt appears unbalanced.

Stefano Micossi, 05 April 2018

A recent report by a group of French and German economists proposed a set of reforms to improve euro area’s financial stability, political cohesion, and potential for delivering prosperity to its citizens. This column, which joins VoxEU's Euro Area Reform debate, discusses some specific aspects of the proposals that in the author’s view deserve further clarification, and considers the overall implications of the proposals for financial stability of the euro area.

Robert Shiller, Jonathan D. Ostry, James Benford, Mark Joy, 16 March 2018

While the idea of governments issuing debt instruments whose repayments are indexed to GDP is not new, the current global backdrop of high government debt suggests the case for doing so might be especially strong now. This column introduces a new eBook in which leading economists, lawyers, and investors examine the case for issuing GDP-linked bonds, the obstacles to market development, ways of overcoming them, and what such a security might look like in practice.

Mark Aguiar, 13 March 2018

In the traditional framework, sovereigns face default if they cannot repay maturing debt. Mark Aguiar discusses the concept of 'rollover crises', in which sovereigns can find new debt to pay off maturing debt - but at high spreads. He proposes a way to structure this ahead of time, that reduces the cost to the government. This video was published by the ADEMU Project in November 2016.

Jonathan Eaton, 09 March 2018

The sovereign debt crisis no doubt heavily impacted the Euro Area as it ran its course, but its longer-term implications for the evolution of Europe remain unclear. Jonathan Eaton discusses some of the similarities and differences between the sovereign debt problems of the 1970s-80s and today, and their implications for the future. This video was published by the ADEMU Project in November 2016.

Daniel Gros, 27 November 2017

A key remaining issue for the completion of the Banking Union is the concentrated exposure of banks in many countries to their own sovereign. This column argues that the belief that banks should be allowed to buy large amounts of their own sovereign so they can stabilise the market in a crisis is mistaken for two reasons: banks are only intermediaries, and banks have higher cost of funding. The overall conclusion is that governments should make it more attractive for households (and other real money investors) to hold government debt directly. 

Tom Best, Christopher Dielmann, Meghan Greene, Tania Mohd Nor, 06 June 2017

State-contingent debt instruments could provide sovereigns with additional policy space in bad states of the world. This column presents an Excel-based tool that allows debt managers and investors to explore the impact of different designs of such instruments on public debt and gross financing needs under user-specified macroeconomic scenarios (both baseline and shocks). Illustrative results show the potential benefits of different bond designs on both debt and gross financing needs.

S. M. Ali Abbas, Daniel Hardy, Jun Kim, Alex Pienkowski, 06 June 2017

The theoretical benefits of state-contingent debt instruments for sovereigns – such as GDP-linked and extendible bonds – have been advocated by academics for several decades, but only recently have the practical constraints and considerations been explored in detail. This column summarises this more recent work, highlighting key findings on instrument design and on broader market development prospects. 

Jean-Pierre Landau, 24 November 2016

The objectives of maximising growth and reducing external imbalances may not be fully compatible in a financially integrated and asymmetric world. This column argues that countries have two choices: they can contain global imbalances and gross financial flows through permanent capital controls, or they can pursue financial integration, managing growing imbalances and external exposures by creating more global safe assets. This implies debt contracts would be either state-contingent, with easy restructuring, or built to be ‘safe’, with a high level of commitment by the issuer.

Gregori Galofré Vilà, Martin McKee, Christopher Meissner, David Stuckler, 09 October 2016

In 1953, the Western Allied powers approved the London Debt Agreement, a radical plan to eliminate half of Germany’s external debt and create generous repayment conditions for the remainder. Using new data from the historical monthly reports of the Deutsche Bundesbank, this column argues that the agreement spurred economic growth by creating fiscal space for public investment, lowering costs of borrowing, and stabilising inflation.

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