Working Paper

Ist die Währungsunion zu retten? Für einen anreizeffizienten Krisenmechanismus

Author

  • Henning Klodt
Publication Date

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.

Info

JEL Classification
F3, E6

Key Words

  • Brady Bonds
  • Debt Mechanics
  • European Monetary Union