A viable insolvency procedure for sovereigns (VIPS) in the euro area

Fuest, Clemens ; Heinemann, Friedrich ; Schröder, Christoph

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URL:	https://ub-madoc.bib.uni-mannheim.de/36990
URN:	urn:nbn:de:bsz:180-madoc-369906
Document Type:	Working paper
Year of publication:	2014
The title of a journal, publication series:	ZEW Discussion Papers
Volume:	14-053
Place of publication:	Mannheim
Publication language:	English
Institution:	Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series:	Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject:	330 Economics
Classification:	JEL: F34 , H12 , H63,
Keywords (English):	Euro area debt crisis , sovereign insolvency procedure
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 proce-dure 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 im-pair the credibility of a future regime change. Against this background, this paper reviews arguments and existing blueprints for sovereign insolvency procedures in the euro area and develops a “Viable Insolvency Procedure for Sovereigns” (VIPS). VIPS avoids any sudden measures which could destabilize the present fragile situation but carefully designs an irre-versible transition towards the new regime. The VIPS proposal comprises two pillars: An in-solvency procedure for the long run and a credible bridge towards that system.