Euro Area Sovereign Debt: Restructuring Options

43 Pages Posted: 25 Nov 2019

See all articles by Theresa Arnold

Theresa Arnold

McGuireWoods LLP

G. Mitu Gulati

Duke University School of Law

Ugo Panizza

Graduate Institute of International and Development Studies (IHEID) - Department of Economics; CEPR

Date Written: November 11, 2019

Abstract

Countries with large debts stocks are vulnerable to the vagaries of the markets. Confidence crises can arise out of nowhere, constricting access to the markets. Hence, the question arises as to whether these countries should put in place mechanisms that will help them better prepare for the possibility of crisis. In effect, the choice is whether to buy insurance. The cost of buying such insurance is that the possibility that markets will see the sovereign’s proactive steps to protect against a crisis not as an indication of prudent governance but rather as an indicator that a crisis is imminent. In this article, we use the case of a Euro area country (Italy) with a large debt stock and a known vulnerability to confidence crises to set forth its options, as of 2019, to anticipate a possible future debt restructuring. It can: do nothing, do a little; or do something substantial.

Keywords: sovereign debt, Italy, Euro area, restructuring, local law advantage

JEL Classification: F34, F54, G15, K22

Suggested Citation

Arnold, Theresa and Gulati, Gaurang Mitu and Panizza, Ugo, Euro Area Sovereign Debt: Restructuring Options (November 11, 2019). Duke Law School Public Law & Legal Theory Series No. 2019-81. Available at SSRN: https://ssrn.com/abstract=3485099 or http://dx.doi.org/10.2139/ssrn.3485099

Theresa Arnold

McGuireWoods LLP

434 Fayetteville Street
Suite 2600
Raleigh, NC 27601
United States

Gaurang Mitu Gulati

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Ugo Panizza (Contact Author)

Graduate Institute of International and Development Studies (IHEID) - Department of Economics ( email )

Geneva Avenue de la Paix 11A
Geneva, 1202
Switzerland

CEPR ( email )

London
United Kingdom

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