Eurozone debt crisis: Reckless debtors or misguided rescuers?

Stefano Micossi 29 May 2011

a

A

Our disgraceful leaders did it again. They managed to deeply unsettle financial markets by once again sparking off doubts on the orderly rollover of distressed sovereigns (Reguly 2011). This has pushed interest spreads over German Bunds to unprecedented heights – over 2300 basis points for Greek sovereigns – and raised fears that contagion might spread not only to Spain and Italy, but reaching the Eurozone core, starting with Belgium (Micossi 2010). The public discussion stands out for its especially damaging effects.

a

A

Topics:  EU policies Europe's nations and regions

Tags:  Debt crisis, Fiscal crisis, Eurozone crisis

Greece, the unbearable heaviness of debt

Paolo Manasse 24 May 2011

a

A

Many analysts long ago predicted that Greece would have to default on part of its debt or, as they say in the markets, investors would have to take a “haircut.”1 It looks like they are getting closer to being right.

On 9 May 2011, Standard & Poors downgraded the Greek debt by reducing its ratings from BB- to B, for the long term, and from B to C, for the short term. The downgrade reflects

a

A

Topics:  EU policies Europe's nations and regions

Tags:  Greece, Eurozone crisis

External versus domestic debt in the euro crisis

Daniel Gros 24 May 2011

a

A

Does external debt matter in a monetary union? The case of Portugal illustrates the importance of foreign debt. The risk premium on Portuguese public debt rose continuously until the country was forced to turn to the European Financial Stability Facility (EFSF) for emergency financing. But its numbers on the fiscal side are no worse than those of France. Markets are worried about Portugal for a different reason – its high external debt – specifically, that of its private sector (banks and enterprises).

a

A

Topics:  EU policies Europe's nations and regions Global crisis

Tags:  Fiscal crisis, Eurozone crisis

Leveraged buyback: A proposal for the Greek debt overhang

Angelo Baglioni 21 May 2011

a

A

The debate surrounding the debt overhang faced by Greece is focussing on two different types of debt restructuring:

  • A “haircut” (i.e. partial debt repayment) applied to the face value and/or to interest payments.
  • A rescheduling of maturities (i.e. stretching out the repayment period).

But both these options are likely to have quite negative effects on financial markets for a number of reasons:

a

A

Topics:  EU policies Europe's nations and regions

Tags:  Greece, Fiscal crisis, Eurozone crisis

Eurozone design and management failures

Guillermo de la Dehesa 18 May 2011

a

A

The sovereign debt crisis has tested, for the first time in its short existence, the resilience of the Eurozone design, governance, and management, showing some of its weaknesses and failures.

Its design was criticised long before the monetary union was created (European Commission 1990). Many academics pointed to three basic design weaknesses.

a

A

Topics:  EU policies Europe's nations and regions

Tags:  Fiscal crisis, Eurozone crisis

The ECB’s three mistakes in the Greek crisis and how to get sovereign debt right in the future

Jeffrey Frankel 16 May 2011

a

A

By now just about everybody agrees that the European bailout of Greece has failed (see for example Darvas et al. 2011). The debt will have to be restructured. As has been evident for well over a year, it is not possible to think of a plausible combination of Greek budget balance, sovereign risk premium, and economic growth rates that imply anything other than an explosive path for the future ratio of debt to GDP.

a

A

Topics:  EU policies Europe's nations and regions

Tags:  ECB, Greece, Fiscal crisis, Eurozone crisis

The troika should target the trade and the income balance deficits

Ricardo Cabral 15 May 2011

a

A

Greece, then Ireland, and more recently Portugal have applied for EU and IMF financial aid. A troika of European Commission, ECB, and IMF officials have negotiated accords for ambitious adjustment programmes with either two or three main components, as mandated by the Eurogroup and the Ecofin Ministers (2010a; 2010b; 2011):

a

A

Topics:  EU policies Europe's nations and regions

Tags:  ECB, IMF, Eurozone crisis, financial aid

Are Michigan and Illinois like Greece and Ireland?

Francis A. Longstaff, Andrew Ang 10 May 2011

a

A

US states are a lot like Eurozone nations.

a

A

Topics:  Financial markets Global crisis International finance

Tags:  Fiscal crisis, Eurozone crisis

Managing a fragile Eurozone

Paul De Grauwe 10 May 2011

a

A

A monetary union is more than just a single currency and a single central bank. Countries that join a monetary union lose more than one instrument of economic policy. They lose their capacity to issue debt in a currency over which they have full control.

This separation of decisions – debt issuance on the one hand and monetary control on the other – creates a critical vulnerability; a loss of market confidence can unleash a self-fulfilling spiral that drives the country into default (see Kopf 2011). The economic logic of this is straightforward.

a

A

Topics:  EU policies International finance

Tags:  currency union, Eurozone crisis

The R word

Charles Wyplosz 29 April 2011

a

A

Rumours circulate widely these days. European policymakers talk about a restructuring of public debts in some countries (see for example Portes 2011). Rumours may be unfounded but they are telling of what people think about. Like sex in Victorian times, everyone wonders about debt restructuring but the R word remains difficult to pronounce in official circles. No one wishes to plunge into debauchery but many of us have long thought that debt restructuring was a viable option that deserves serious consideration and preparation.

a

A

Topics:  EU policies Europe's nations and regions

Tags:  Italy, Spain, Ireland, Greece, Fiscal crisis, Eurozone crisis, Portugal

Pages