Kiel Working Papers, Kiel Institute for World Economics
No 1690:
Ist die Währungsunion zu retten? Für einen anreizeffizienten Krisenmechanismus
Henning Klodt
Abstract: Are the measures of the European Stability Mechanism
sufficient for preventing further debt crises similar to those in Greece
and Portugal? Definitively not, because private investors still enjoy
rather high interest rates of dubious government bonds without being
adequately involved in bearing the risks. The paper argues that government
bonds of indebted countries should undergo a substantial haircut at the
expense of private investors. In turn, the devaluated bonds should be
guaranteed by the community of Euro countries. An essential precondition
for these measures to work is an appropriate banking regulation which
prevents systemic banks from destabilizing entire economies when going
bust. Neither the provisional nor the permanent European Stability
Mechanism meet these requirements of an incentive efficient rescue plan
Keywords: European Monetary Union, Debt Mechanics, Brady Bonds; (follow links to similar papers)
JEL-Codes: F3,; E6; (follow links to similar papers)
16 pages, March 2011
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