Maria Demertzis & Stavros Zenios, (2018), “State contingent debt as insurance for euro-area sovereigns”, Bruegel, working paper, 26 April
Since the financial crisis, EU countries’ economies have recovered to the point that they are exiting their adjustment programmes. Institutional stability mechanisms have been improved at the European level, with the promotion of the banking union and the establishment of a European Monetary Fund, for instance. However, the authors argue that such crisis contingencies should include markets in their risk-sharing, which would require better coordination with institutions.
The euro-area sovereign debt crisis is receding. Europe is on a recovery path, growth is broad-based and unemployment is falling. One after the other, countries hit hardest by the crisis are exiting their adjustment programmes. However, debt remains high in most countries and future debt crises should not be ruled out. While the memories are fresh, it is a good time to think about insurance against future shocks. Such insurance schemes must involve risk sharing with the markets. They weaken the bank-sovereign doom loop from the sovereigns’ side, and not just from the banks’ side as pursued by the banking union, and make for a more resilient euro area.
- Sebnem Kalemli-Ozcan, Luc Laeven, David Moreno, (2018), «Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis», discussion paper, CEPR
- Sotiria Theodoropoulou, (2018), «Managing public debt in Europe: an introductory guide», European Trade Union Institute, Brussels