The Great EU Debt Write Off

Abstract:     
When one economic entity is both a creditor and debtor to another, a somewhat obvious and simple idea is to cross cancel their debt. We created a classroom simulation where students were required to research the debt position of 8 EU countries (Portugal, Ireland, Italy, Greece, Spain, Britain, France and Germany) and then conduct a negotiation exercise to reduce their total debt burdens. As a result students developed their research skills and data analysis, and increased their understanding of the data regarding an important topical issue. The simulation itself exposed students to a number of different trading strategies, in particular the complexity of going from bilateral to wider deal making, and negotiating from weak positions. By making students the focus of the exercise their engagement and learning outcomes were high.

Number of Pages in PDF File: 14

Keywords: sovereign debt crisis, cross cancellation, write off, simulation

JEL Classification: A23, F34

working papers series