A mechanism to regulate sovereign debt restructuring in the euro area

摘要

A missing element in the architecture of the euro area is a mechanism for an orderly restructuring of unsustainable sovereign debt. Clear rules for creditor participation in case of overindebtedness would strengthen market discipline and enhance the effectiveness of crisis assistance. We propose a novel two-stage mechanism that allows for postponing the crucial distinction between liquidity and solvency crises and is part of the assistance provided by the European Stability Mechanism (ESM). At the onset of a programme, the framework includes an immediate maturity extension if the debt burden is high. If post-crisis debt turns out to be unsustainable, the debtor country can negotiate a deeper debt restructuring. In addition, we introduce a gradual transition phase into the new regime. As current debt matures, it is replaced by a new class of bonds with Creditor Participation Clauses (CPC), which are subject to the new rules as mentioned above.