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 Topic: Macroeconomic policy

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, External Author

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

Jochen Andritzky

External Author

Lars Feld

Member, German Council of Economic Experts

Zsolt Darvas

Senior Fellow

Guntram B. Wolff

Director

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Bryn Watkins

Bryn Watkins

[email protected] +32 2 227 42 88

Read article
 

External Publication

European Parliament

Tailoring prudential policy to bank size: the application of proportionality in the US and euro area

In-depth analysis prepared for the European Parliament's Committee on Economic and Monetary Affairs (ECON).

By: Alexander Lehmann and Nicolas Véron Topic: Banking and capital markets, European Parliament, Macroeconomic policy Date: October 14, 2021
Read about event More on this topic
 

Upcoming Event

Nov
4
14:00

European monetary policy: lessons from the past two decades

This event will feature the presentation of “Monetary Policy in Times of Crisis – A Tale of Two Decades of the European Central Bank."

Speakers: Grégory Claeys and Wolfgang Lemke Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author
 

External Publication

A world recovery fund to overcome developing countries’ post-covid debt woes?

Proposal to set up a World Recovery Fund (WRF), aimed at addressing some of the key problems with the design of the DSSI and more generally the existing international financial architecture for dealing with debt problems in the developing world.

By: Alicia García-Herrero Topic: Global economy and trade Date: October 6, 2021
Read about event More on this topic
 

Past Event

Past Event

What is the link between biodiversity loss and financial instability?

Biodiversity loss impacts financial stability. How big is the risk of biodiversity loss for financial institutions?

Speakers: Sylvie Goulard, Romain Svartzman, Guntram B. Wolff and Michael Wilkins Topic: Banking and capital markets Date: October 5, 2021
Read article More by this author
 

Podcast

Podcast

A green fiscal pact

How can the European Union increase green public investment while consolidating budget deficits?

By: The Sound of Economics Topic: European governance, Macroeconomic policy Date: September 29, 2021
Read about event More on this topic
 

Past Event

Past Event

How to strike the right balance between the three pillars of the pension system?

In this event panelists will discuss the future of European pension schemes.

Speakers: Elsa Fornero, Svend E. Hougaard Jensen and Suvi-Anne Siimes Topic: Macroeconomic policy Date: September 23, 2021
Read article Download PDF
 

Policy Contribution

European governance

A green fiscal pact: climate investment in times of budget consolidation

Increasing green public investment while consolidating deficits will be a central challenge of this decade. A green fiscal pact would address this tension, but difficult trade-offs remain.

By: Zsolt Darvas and Guntram B. Wolff Topic: European governance, Macroeconomic policy Date: September 9, 2021
Read about event More on this topic
 

Past Event

Past Event

Academic lecture: International technology competition

Bruegel Annual Meetings, Day 3 - On the final day of the Annual Meetings, our Director Guntram Wolf sits with Keyu Jin to discuss international competition policy.

Speakers: Keyu Jin, J. Scott Marcus and Guntram B. Wolff Topic: Digital economy and innovation Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 3, 2021
Read about event
 

Past Event

Past Event

Conference on the Future of Europe: envisioning EU citizens engagement

Bruegel Annual Meetings, Day 3 - Panellists will discuss different options and what they may entail while revisiting the debates on the future of Europe at national and EU-level that have been conducted thus far.

Speakers: Caroline de Gruyter, Kalypso Nicolaïdis, Niclas Poitiers and György Szapáry Topic: European governance, Macroeconomic policy Location: Palais des Academies, Rue Ducale 1 Date: September 3, 2021
Read about event
 

Past Event

Past Event

Sustainable finance

Bruegel Annual Meetings, Day 3 - In this session on the final day of the Meetings, our panelists will discuss the future of finance and its sustainability.

Speakers: Maria Demertzis, Alberto De Paoli, Pierre Heilbronn and Alexandra Jour-Schroeder Topic: Banking and capital markets, Green economy Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 3, 2021
Read about event More on this topic
 

Past Event

Past Event

The role of the EU's trade strategy for an inclusive and sustainable recovery

Bruegel Annual Meetings, Day 3 - We are delighted to welcome Valdis Dombrovskis, Executive Vice President of the European Commission for An Economy that Works for People to talk about Europe's trade strategy.

Speakers: Valdis Dombrovskis, Alicia García-Herrero and Guntram B. Wolff Topic: Macroeconomic policy Location: Palais des Academies, Rue Ducale 1 Date: September 3, 2021
Read about event More on this topic
 

Past Event

Past Event

Navigating a more polarised world: policy implications

Bruegel Annual Meetings, Day 2 - Are we entering a new age in the relationship between international economics and global politics? Is Europe well-equipped for this new world?

Speakers: Hélène Rey, Jean Pisani-Ferry, Adam Tooze and Sabine Weyand Topic: Global economy and trade Location: Palais des Academies, Rue Ducale 1 Date: September 2, 2021
Load more posts