Collective Action Clauses and Sovereign Debt Restructuring Frameworks: Why and When is Restructuring Appropriate

Abstract

This paper discusses some of the legal aspects of Collective Action Clauses (CACs) in the context of the Eurozone and then approaches the broader economic issue of why it may be useful to have more efficient CACs, such as single-limb CACs, and when and in what circumstances it may be appropriate to restructure sovereign debts. Whatever Eurozone authorities will do with ESM rules and CACs, it is crucial not to repeat the mistake that was done in 2010 in Deauville. When markets learnt about PSI, contagion effects were significant and markets were destabilized in several Eurozone countries.

Keywords: sovereign debt, restructuring, default, Italy, Collective Action Clauses, Deauville

JEL Classification: H63, K12, K22