An Outline of a Progressive Resolution to the Euro-Area Sovereign Debt Overhang: How a Five-Year Suspension of the Debt Burden Could Overthrow Austerity

Levy Economics Institute, Working Papers Series No. 819

33 Pages Posted: 19 Nov 2014

See all articles by Dimitris P Sotiropoulos

Dimitris P Sotiropoulos

The Open University - Business School

John Milios

National Technical University of Athens (NTUA)

Spyros Lapatsioras

University of Crete - Department of Economics

Date Written: November 17, 2014

Abstract

The present study puts forward a plan for solving the sovereign debt crisis in the euro area (EA) in line with the interests of the working classes and the social majority. Our main strategy is for the European Central Bank (ECB) to acquire a significant part of the outstanding sovereign debt (at market prices) of the countries in the EA and convert it to zero-coupon bonds. No transfers will take place between individual states; taxpayers in any EA country will not be involved in the debt restructuring of any foreign eurozone country. Debt will not be forgiven: individual states will agree to buy it back from the ECB in the future when the ratio of sovereign debt to GDP has fallen to 20 percent. The sterilization costs for the ECB are manageable. This model of an unconventional monetary intervention would give progressive governments in the EA the necessary basis for developing social and welfare policies to the benefit of the working classes. It would reverse present-day policy priorities and replace the neoliberal agenda with a program of social and economic reconstruction, with the elites paying for the crisis. The perspective taken here favors social justice and coherence, having as its priority the social needs and the interests of the working majority.

Keywords: Euro Area, Sovereign Debt, European Central Bank, Unconventional Monetary Policies

JEL Classification: E58, E61, F65, H12, H63

Suggested Citation

Sotiropoulos, Dimitris P and Milios, John and Lapatsioras, Spyros, An Outline of a Progressive Resolution to the Euro-Area Sovereign Debt Overhang: How a Five-Year Suspension of the Debt Burden Could Overthrow Austerity (November 17, 2014). Levy Economics Institute, Working Papers Series No. 819, Available at SSRN: https://ssrn.com/abstract=2526204 or http://dx.doi.org/10.2139/ssrn.2526204

Dimitris P Sotiropoulos (Contact Author)

The Open University - Business School ( email )

Milton Keynes, MK6 7AA
United Kingdom

John Milios

National Technical University of Athens (NTUA) ( email )

Athens
Greece

Spyros Lapatsioras

University of Crete - Department of Economics ( email )

Rethymno, GR-74100
Greece

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