The Role of Creditor Seniority in Europe's Sovereign Debt Crisis

58 Pages Posted: 26 Jul 2014

See all articles by Sven Steinkamp

Sven Steinkamp

Universität Osnabrück - Institute of Empirical Economic Research

Frank Westermann

University of Osnabrueck - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Date Written: July 2014

Abstract

The share of public debt that is held by lenders with preferred creditor status (i.e. the IMF, ECB, ESM, etc.) has increased substantially during Europe's sovereign debt crisis. Empirically, we document in both macro and survey data that there exists a close relationship between the increase in senior tranche lending and the interest rates of countries in crisis. With regard to policy implications, we point out a predicament that policymakers are facing: while aiming to stabilize interest rates at a reasonable level, providing further senior loans might achieve just the opposite, as private markets are gradually pushed into a junior position.

Suggested Citation

Steinkamp, Sven and Westermann, Frank, The Role of Creditor Seniority in Europe's Sovereign Debt Crisis (July 2014). Economic Policy, Vol. 29, Issue 79, pp. 495-552, 2014. Available at SSRN: https://ssrn.com/abstract=2472170 or http://dx.doi.org/10.1111/1468-0327.12036

Sven Steinkamp (Contact Author)

Universität Osnabrück - Institute of Empirical Economic Research ( email )

Barbarastr. 12
Osnabrueck, 49076
Germany

Frank Westermann

University of Osnabrueck - Department of Economics ( email )

Rolandstr. 8
Osnabrueck, D-49069
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

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