Link to the University of Pittsburgh
Link to the University Library SystemContact us link
AEI Banner

Why Is Sovereign Debt Restructuring a Challenge? The Case of Greece. Bruges European Economic Policy (BEEP) Briefing 24/2012

Dreger, Joanna (2012) Why Is Sovereign Debt Restructuring a Challenge? The Case of Greece. Bruges European Economic Policy (BEEP) Briefing 24/2012. [Policy Paper]

[img] PDF - Published Version
Download (1008Kb)


    The reduction of Greek sovereign debt by €106 billion, agreed in the second bailout package of February 2012, is the largest in history. Nevertheless, immediately after publishing the key terms of the package, doubts arose whether it would achieve its goals: to reduce the debt-to-GDP ratio to 120.5% in 2020 and to ensure the return of Greece to market financing by 2015. This Briefing gives a timely input to the debate as it develops an analytical framework through which the expected failure of the Greek debt reduction can be assessed. It surveys the economic literature to identify three groups of factors reducing the effectiveness of sovereign debt restructuring: (1) sovereign’s fundamentals, (2) inefficiencies inherent in the restructuring process and (3) costs of restructuring; and applies them to the case of Greece. Based on this analysis, three policy implications are formulated, with relevance to Greece and the wider eurozone. Firstly, the importance of increased policy effort by Greece to enact current structural and growth-enhancing reforms is underlined. Secondly, the introduction of uniform CACs is proposed that will reduce the market participants’ uncertainty, discipline the runs on government debt and address the holdout inefficiency. Finally, sovereign debt restructuring is not recommended as a universal solution for over- indebtedness in the EU, given the direct and reputation costs of sovereign debt restructuring and the self-fulfilling nature of sovereign debt crises.

    Export/Citation:EndNote | BibTeX | Dublin Core | ASCII (Chicago style) | HTML Citation | OpenURL
    Social Networking:
    Item Type: Policy Paper
    Uncontrolled Keywords: sovereign debt, debt restructuring, eurozone, Greece
    Subjects for non-EU documents: Countries > Greece
    EU policies and themes > Policies & related activities > economic and financial affairs > fiscal policy
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > College of Europe (Brugge) > Bruges European Economic Policy Briefings (BEEP)
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 22 Dec 2014 11:24
    Number of Pages: 46
    Last Modified: 22 Dec 2014 11:24

    Actions (login required)

    View Item

    Document Downloads