Debt Default and Democracy
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Debt Default and Democracy

Edited by Giuseppe Eusepi and Richard E. Wagner

The original chapters in this book connect the microeconomic and macroeconomic approaches to public debt. Through their thought-provoking views, leading scholars offer insights into the incentives that individuals and governments may have in resorting to public debt, thereby promoting a clearer understanding of its economic consequences.
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Chapter 6: On some recent proposals of public debt restructuring in the Eurozone

Ernesto Longobardi and Antonio Pedone

Abstract

This chapter deals with the issue of sovereign debts in the Eurozone. After a brief discussion of the reasons for their reduction, the different strategies used in the past to this end are considered. It is argued that they are either not viable today or can assure only limited results. Thus, the policy of accumulating primary surpluses seems the only practicable one. However, the alternative of restructuring has been investigated with growing attention. Two distinct perspectives have been followed. On one side, a number of proposals deal with the issue of existing debt. There are reasons to doubt that they are substantially different from the policies currently followed. On the other side, several projects are aimed at establishing a permanent insolvency mechanism for sovereigns, with the purpose of making effective the no bail-out principle. The question is raised as to whether they are feasible in the absence of any element of fiscal union.

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