Debt restructuring in the euro area: a necessary but manageable evil?

Zsolt Darvas

No 1133, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: There are two possible responses to the Greek debt crisis: 'Plan A', continued official lending, for as long as needed, with possible voluntary private sector involvement, and 'Plan B', coercive pre-emptive or post-default restructuring with significant face value reduction in privately-held debt. Both options have risks, but it is necessary to move to Plan B sooner or later. The impact on Greece could be mitigated by foreign bank ownership and proper liquidity support measures. The direct spillover impact on the rest of the euro area seems small. But there is the risk of contagion, which is a serious concern. There is a cautious case for delaying somewhat Plan B in order to prepare for it.

Keywords: debt restructuring; euro-area crisis; fiscal sustainability; financial interdependence; Lehman Brothers (search for similar items in EconPapers)
JEL-codes: E60 F34 H63 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2011-06
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Debt restructuring in the euro area- A necessary but manageable evil? (2011)
Working Paper: Debt Restructuring in the Euro Area: a Necessary but Manageable Evil? (2011)
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