Why Is Sovereign Debt Restructuring a Challenge? The Case of Greece. Bruges European Economic Policy (BEEP) Briefing 24/2012

The reduction of Greek sovereign debt by €106 billion, agreed in the second bailout package of February 2012, is the largest in history. Nevertheless, immediately after publishing the key terms of the package, doubts arose whether it would achieve its goals: to reduce the debt-to-GDP ratio to 120.5% in 2020 and to ensure the return of Greece to market financing by 2015. This Briefing gives a timely input to the debate as it develops an analytical framework through which the expected failure of the Greek debt reduction can be assessed. It surveys the economic literature to identify three groups of factors reducing the effectiveness of sovereign debt restructuring: (1) sovereign’s fundamentals, (2) inefficiencies inherent in the restructuring process and (3) costs of restructuring; and applies them to the case of Greece. Based on this analysis, three policy implications are formulated, with relevance to Greece and the wider eurozone. Firstly, the importance of increased policy effort by Greece to enact current structural and growth-enhancing reforms is underlined. Secondly, the introduction of uniform CACs is proposed that will reduce the market participants’ uncertainty, discipline the runs on government debt and address the holdout inefficiency. Finally, sovereign debt restructuring is not recommended as a universal solution for over- indebtedness in the EU, given the direct and reputation costs of sovereign debt restructuring and the self-fulfilling nature of sovereign debt crises.

Strangers among us. Non-governmental organisations in Russia. OSW COMMENTARY 2015-09-29

The situation of the third sector in Russia, i.e. the civil society structures independent from the state, is worsening on a regular basis. The Kremlin’s actions aimed at paralysing and destroying the independent non-governmental sector seen over the past four years have been presented as part of a struggle for the country’s sovereignty. This is above all a consequence of the Russian government’s efforts to take full control of the socio-political situation in the country while it also needs to deal with the geopolitical confrontation with the West and the worsening economic crisis. The policy aimed against non-governmental organisations is depriving the public of structures for self-organisation, protection of civil rights and the means of controlling the ever more authoritarian government. At the same time, the Kremlin has been depriving itself of channels of co-operation and communication with the public and antagonising the most active citizens. The restrictive measures the Kremlin has taken over the past few years with regard to NGOs prove that Russian decision-makers believe that any social initiative independent of the government may give rise to unrest, which is dangerous for the regime, and – given the economic slump – any unrest brings unnecessary political risk.

Does ASEM work? CEPS Policy Brief No. 321, 14 October 2014

This CEPS Policy Brief is based on a larger study for the EEAS and European Commission, written by the same authors in the run-up of the Milan ASEM summit of 16-17 October 2014. The main idea of the study is to assess whether ASEM works and how, by verifying the factual evidence in detail. After all, ASEM has no institutions, no budget and no treaty, whilst dialogues and a loose improvement over time in Asia-Europe relations refer to process much more than genuine ‘results’. The stocktaking covers all ASEM activities since the 2006 Helsinki summit. Summit and foreign ministers’ declarations and ASEM calendar of activities (and interviews) are used to trace ASEM activities in the three ASEM pillars (political, economic, and peoples-to-peoples/cultural). All the ‘regular’ ASEM meetings at ministerial and other levels (many of which are only known to relatively few) have been mapped. Also the ASEM working methods, based on the 2000 AECF framework and many subsequent initiatives, have been scrutinised, including whether they are actually implemented or not or partially. Such methods refer to how to work together in areas of cooperation (beyond the typical ASEM dialogue), organisation, coordination and ASEM visibility. The main conclusion is that ASEM works reasonably well, once one accepts the ASEM of today, although some inefficiencies still characterise the ‘system’. There is a host of secondary conclusions on the three pillars, the foreign ministers, the strong government-to-government nature of ASEM and the working methods. We recommend that today’s ASEM needs no reform and that not having ASEM would entail political and diplomatic costs. We emphasise that ASEM is well placed to stimulate exchange of information between the mega-FTAs such as TPP, RCEP and TTIP. However, the ASEM of tomorrow might be different, given the great changes in geo-political and economic conditions since ASEM began in the mid-1990s. Moreover, the size of ASEM has become such that classical ways of operating with (after Milano) 53 countries (including the EU and ASEAN) cannot possibly be effective all the time. We suggest that, in the run-up to the 20th ASEM birthday (2016), EU and Asian independent think-tanks get together to write an ‘options report’ reconsidering options for a new ASEM, as the basis for a profound and wide debate how to get more value-added out of ASEM.

Living (dangerously) without a fiscal union. Bruegel Working Paper 2015/03

The euro area’s political contract requires member nations to rely principally on their own resources when confronted with severe economic distress. Since monetary policy is the same for all, national fiscal austerity is the default response to counter national fiscal stress. Moreover, the monetary policy was itself stodgy in countering the crisis, and banking-sector problems were allowed to fester. And it was considered inappropriate to impose losses on private sector creditors. Thus, the nature of the incomplete monetary union and the self-imposed taboos led deep and persistent fiscal austerity to become the norm. As a consequence, growth was hurt, which undermined the primary objective of lowering the debt burden. To prevent a meltdown, distressed nations were given official loans to repay private creditors. But the stress and instability continued and soon it became necessary to ease the repayment terms on official loans. When even that proved insufficient, the German-inspired fiscal austerity was combined with the deep pockets of the European Central Bank. The ECB’s safety net for insolvent or near-insolvent banks and sovereigns, in effect, substituted for the absent fiscal union and drew the central bank into the political process.