A Viable Insolvency Procedure for Sovereigns in the Euro Area

17 Pages Posted: 5 Feb 2016

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 Schröder

ZEW – Leibniz Centre for European Economic Research

Date Written: March 2016

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 procedure 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 impair the credibility of a future regime change. Against this background, this article reviews arguments and existing blueprints for sovereign insolvency procedures in the euro area and develops a Viable Insolvency Procedure for Sovereigns. This procedure avoids any sudden measures which could destabilize the present fragile situation but carefully designs an irreversible transition toward the new regime. The proposal comprises two pillars: an insolvency procedure for the long run and a credible bridge toward that system.

Keywords: euro area debt crisis, sovereign insolvency procedure

Suggested Citation

Fuest, Clemens and Heinemann, Friedrich and Schröder, Christoph, A Viable Insolvency Procedure for Sovereigns in the Euro Area (March 2016). JCMS: Journal of Common Market Studies, Vol. 54, Issue 2, pp. 301-317, 2016. Available at SSRN: https://ssrn.com/abstract=2728031 or http://dx.doi.org/10.1111/jcms.12287

Clemens Fuest (Contact Author)

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

Poschinger Str. 5
Munich, DE 81679
Germany
++89-9224-1430 (Phone)

Ludwig-Maximilians-University, Munich ( email )

Schackstrasse 4 / II
Munich, DE 80539
Germany

Center for Economic Studies (CES) ( email )

Schackstr. 4
Munich, DE 80539
Germany
++89 2180-2748 (Phone)
++89 2180-17845 (Fax)

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 Schröder

ZEW – Leibniz Centre for European Economic Research

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

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