A Viable Insolvency Procedure for Sovereigns (VIPS) in the Euro Area

30 Pages Posted: 26 Aug 2014

See all articles by Clemens Fuest

Clemens Fuest

ifo Institute – Leibniz Institute for Economic Research at the University of Munich; Ludwig-Maximilians-University, Munich; Center for Economic Studies (CES)

Friedrich Heinemann

ZEW – Leibniz Centre for European Economic Research; University of Heidelberg - Alfred Weber Institute for Economics

Christoph Schroeder

ZEW – Leibniz Centre for European Economic Research

Date Written: August 1, 2014

Abstract

A mechanism to restructure the debt of an insolvent euro country is a missing element in the emerging institutional architecture of the euro area. The introduction of an insolvency proce-dure for sovereigns faces a dilemma: In the foreseeable future, its introduction would risk pushing Europe back into acute crisis. But the indefinite postponement of reform would im-pair the credibility of a future regime change. Against this background, this paper reviews arguments and existing blueprints for sovereign insolvency procedures in the euro area and develops a “Viable Insolvency Procedure for Sovereigns” (VIPS). VIPS avoids any sudden measures which could destabilize the present fragile situation but carefully designs an irreversible transition towards the new regime. The VIPS proposal comprises two pillars: An insolvency procedure for the long run and a credible bridge towards that system.

Keywords: euro area debt crisis, sovereign insolvency procedure

JEL Classification: F34, H12, H63

Suggested Citation

Fuest, Clemens and Heinemann, Friedrich and Schroeder, Christoph, A Viable Insolvency Procedure for Sovereigns (VIPS) in the Euro Area (August 1, 2014). ZEW - Centre for European Economic Research Discussion Paper No. 14-053. Available at SSRN: https://ssrn.com/abstract=2486528 or http://dx.doi.org/10.2139/ssrn.2486528

Clemens Fuest (Contact Author)

ifo Institute – Leibniz Institute for Economic Research at the University of Munich

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Ludwig-Maximilians-University, Munich ( email )

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Center for Economic Studies (CES) ( email )

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++89 2180-2748 (Phone)
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Friedrich Heinemann

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

HOME PAGE: http://www.zew.de

University of Heidelberg - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

Christoph Schroeder

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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