Evaluating the Euro CAC Experiment of 2013

10 Pages Posted: 23 May 2016

See all articles by Elena Carletti

Elena Carletti

Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Paolo Colla

Bocconi University - Department of Finance; Bocconi University - BAFFI Center on International Markets, Money, and Regulation

G. Mitu Gulati

Duke University School of Law

Date Written: May 20, 2016

Abstract

On January 1, 2013, it became mandatory that every new sovereign bond issued by a member of the European Monetary Union include a new contract clause called a Collective Action Clause or CAC. This, we believe, constituted the biggest one-time change to the terms of sovereign debt contracts in history, impacting a market of many trillions of euros. And it was not just that the change was big in terms of the size of the market it impacted; it was big in terms of its impact on the documentation of each individual Euro area sovereign bond contract. To illustrate, prior to January 1, 2013, all of the terms of a local-law Irish sovereign bond fitted on about a page and a half; the full document was about three pages long. After January 1, 2013, the document was twenty pages long; almost all of that space taken by the new CAC term. In terms of words on the page, it was a big change. But did it do anything meaningful? And, more importantly, did it do what it was intended to do?

Keywords: sovereign debt, collective action clauses, euro, eurozone

JEL Classification: F33, F34, G18, G15, H81, K12

Suggested Citation

Carletti, Elena and Colla, Paolo and Gulati, Gaurang Mitu, Evaluating the Euro CAC Experiment of 2013 (May 20, 2016). Available at SSRN: https://ssrn.com/abstract=2782564 or http://dx.doi.org/10.2139/ssrn.2782564

Elena Carletti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Paolo Colla

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Gaurang Mitu Gulati (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

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