A simple model of multiple equilibria and default. CEPS Working Document No. 366, 16 July 2012

This Working Document by Daniel Gros presents a simple model that incorporates two types of sovereign default cost: first, a lump-sum cost due to the fact that the country does not service its debt fully and is recognised as being in default status, by ratings agencies, for example. Second, a cost that increases with the size of the losses (or haircut) imposed on creditors whose resistance to a haircut increases with the proportional loss inflicted upon them. One immediate implication of the model is that under some circumstances the creditors have a (collective) interest to forgive some debt in order to induce the country not to default. The model exhibits a potential for multiple equilibria, given that a higher interest rate charged by investors increases the debt service burden and thus the temptation to default. Under very high debt levels credit rationing can set in as the feedback loop between higher interest rates and the higher incentive to default can become explosive. The introduction of uncertainty makes multiple equilibria less likely and reduces their range.

Joining up or falling apart: towards a networked communications model for EU foreign policy. EPC Policy Brief, 1 October 2015

Communication is a key element of diplomatic activity. In the 21st century, the shift from the traditional model of state diplomacy to a post-Westphalian, multi-stakeholder diplomacy has also had an impact on communication within diplomatic systems. In this Policy Brief, Juliane Schmidt (EPC Programme Assistant) argues that the EU should work on developing a more networked communications model so that the European External Action Service (EEAS) can communicate more effectively with all stakeholders of EU external action. Only then can the EEAS shape comprehensive foreign policy strategies and unlock its true potential as a central coordinator for EU external action.