Steinkamp, S. & Westermann, F. (2014) “The role of creditor seniority in Europe’s sovereign debt crisis“. Economic Policy, Vol. 29, Issue 79, pp. 495–552.
The share of public debt that is held by lenders with preferred creditor status (i.e. the IMF, ECB, ESM, etc.) has increased substantially during Europe’s sovereign debt crisis. Empirically, we document in both macro and survey data that there exists a close relationship between the increase in senior tranche lending and the interest rates of countries in crisis. With regard to policy implications, we point out a predicament that policymakers are facing: while aiming to stabilize interest rates at a reasonable level, providing further senior loans might achieve just the opposite, as private markets are gradually pushed into a junior position.
Relevant posts:
- Sayek, S. & Taskin, F. (2014) “Financial crises: lessons from history for today“, Economic Policy, Vol. 29, Issue 79, pp. 447–493.
- Meyer, H. (2014) “How Money And Credit Work“, Social Europe Journal, 23 July.
- Schadler, S. (2014) “The IMF’s preferred creditor status: Questions after the Eurozone crisis”, VoxEU Organisation, 28 April.