The political economy of Euro area sovereign debt restructuring

Heinemann, Friedrich

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URN: urn:nbn:de:bsz:180-madoc-589542
Document Type: Working paper
Year of publication: 2021
The title of a journal, publication series: ZEW Discussion Papers
Volume: 21-004
Place of publication: Mannheim
Publication language: English
Institution: Außerfakultäre Einrichtungen > SFB 884
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 320 Political science
Classification: JEL: H63 , H87 , F53,
Keywords (English): Sovereign debt restructuring mechanism , banking regulation , EMU reform , fiscal union
Abstract: The establishment of a sovereign debt restructuring mechanism (SDRM) is one of the important issues in the academic debate on a viable constitution for the European Monetary Union (EMU). Yet the topic seems to be taboo in official reform contributions to the debate. Against this backdrop, the article identifies the SDRM interests of key players, including the European Commission, the European Parliament, the European Central Bank and national governments. The empirical section takes advantage of the recently established EMU Positions Database. The findings confirm political economy expectations: Low-debt countries support an EMU constitution that includes an insolvency procedure whereas a coalition of high-debt countries and European institutions oppose it. The analysis points towards a possible political-economic equilibrium for coping with sovereign insolvencies: an institutional set-up without a SDRM and with hidden transfers. Recent European fiscal innovatios in response to the Covid-19 solvency shock confirm this prediction.

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