An Outline of a Progressive Resolution to the Euro-area Sovereign Debt Overhang: How a Five-year Suspension of the Debt Burden Could Overthrow Austerity

Dimitris P. Sotiropoulos, John Milios and Spyros Lapatsioras

Economics Working Paper Archive from Levy Economics Institute

Abstract: The present study puts forward a plan for solving the sovereign debt crisis in the euro area (EA) in line with the interests of the working classes and the social majority. Our main strategy is for the European Central Bank (ECB) to acquire a significant part of the outstanding sovereign debt (at market prices) of the countries in the EA and convert it to zero-coupon bonds. No transfers will take place between individual states; taxpayers in any EA country will not be involved in the debt restructuring of any foreign eurozone country. Debt will not be forgiven: individual states will agree to buy it back from the ECB in the future when the ratio of sovereign debt to GDP has fallen to 20 percent. The sterilization costs for the ECB are manageable. This model of an unconventional monetary intervention would give progressive governments in the EA the necessary basis for developing social and welfare policies to the benefit of the working classes. It would reverse present-day policy priorities and replace the neoliberal agenda with a program of social and economic reconstruction, with the elites paying for the crisis. The perspective taken here favors social justice and coherence, having as its priority the social needs and the interests of the working majority.

Keywords: Euro Area; Sovereign Debt; European Central Bank; Unconventional Monetary Policies (search for similar items in EconPapers)
JEL-codes: E58 E61 F65 H12 H63 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pke
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Citations: View citations in EconPapers (3)

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