Euro Area Sovereign Debt: Restructuring Options

Theresa Arnold (tarnold@mcguirewoods.com), Mitu Gulati (gulati@law.duke.edu) and Ugo Panizza
Additional contact information
Theresa Arnold: McGuire Woods, https://www.mcguirewoods.com/
Mitu Gulati: Duke University Law School, https://law.duke.edu/

No 18-2019, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: Countries with large debts stocks are vulnerable to the vagaries of the markets. Confidence crises can arise out of nowhere, constricting access to the markets. Hence, the question arises as to whether these countries should put in place mechanisms that will help them better prepare for the possibility of crisis. In effect, the choice is whether to buy insurance. The cost of buying such insurance is that the possibility that markets will see the sovereign’s proactive steps to protect against a crisis not as an indication of prudent governance but rather as an indicator that a crisis is imminent. In this article, we use the case of a hypothetical euro area country (Italy) with a large debt stock and a known vulnerability to confidence crises to set forth its options, as of 2019, to anticipate a possible future debt restructuring. It can: do nothing, do a little; and do something substantial.

Keywords: Sovereign debt; Italy; euro area; restructuring; local law advantage (search for similar items in EconPapers)
JEL-codes: F34 F54 G15 H12 H63 K22 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2019-11-12
New Economics Papers: this item is included in nep-eec
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp18-2019

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