Chapter 10: Sovereign Debt Restructuring in the EU: Lessons from the Recent Crisis
Kern Alexander* INTRODUCTION The global financial crisis has led to a severe recession in Europe culminating in sovereign debt problems for many eurozone governments. Greece was particularly hard hit because of fiscal mismanagement and unsustainably high levels of public debt, resulting in an extraordinary and unprecedented bailout by eurozone governments and the International Monetary Fund (IMF), with the creation of the European Financial Stabilization Mechanism1 and the European Financial Stability Facility (EFSF).2 The * I would like to thank Karin Lorez for her research assistance. In a previous commissioned report, entitled ‘Market Impact of an Orderly Sovereign Debt Restructuring’ (September 2010), the author proposed the mandatory use of collective action clauses (CACs) for EU sovereign bond contracts and a permanent sovereign liquidity mechanism. The CAC proposal was later adopted by the European Council in December 2010 in a Regulation that would require all EU states to use CACs in their sovereign bond contracts from 2013 onwards. 1 The EU created the EFSM in 2008 to lend up to 60 billion euros to EU Member States who were experiencing difficulties in financing international trade resulting from the global credit crunch and the collapse of Lehman Brothers in 2008. Council Regulation (EU) No. 407/2010 of 11 May 2010 establishing a European Financial Stability Mechanism, OJ L 118/1 (12/05/2010). The EU used the fund along with additional IMF financial support to help pay the EUR 110 billion bailout for Greece that was approved on May 2010. The EFSM is not the focus of...
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