Sovereign debt and its restructuring framework in the Euro area. Bruegel Working Paper 2013/05, August 2013

To compensate for the inflexibility of fixed exchange rates, the euro area needs flexibility through a system of orderly debt restructuring. With virtually no room for macroeconomic manoeuvring since the crisis onset, fiscal austerity has been the main instrument for achieving reductions in public debt levels; but because austerity also weakens growth, public debt ratios have barely budged. Austerity has also implied continued high private debt ratios. And these debt burdens have perpetuated economic stasis. Economic theory,history, and the recent experience all call for a principled debt restructuring mechanism as an integral element of the euro area’s design. Sovereign debt should be recognised as equity (a residual claim on the sovereign), operationalised by the automatic lowering of the debt burden upon the breach of contractually-specified thresholds. Making debt more equity-like is also the way forward for speedy private deleveraging. This debt-equity swap principle is a needed shock absorber for the future but will also serve as the principle to deal with the overhang of ‘legacy’ debt.

The euro before the financial crisis of 2008: an integrating and stabilizing factor. Jean Monnet/Robert Schuman Vol. 13 No. 9, June 2013

From the Introduction. The main focus of this study is to examine whether the euro has been an economic, monetary, fiscal, and social stabilizer for the Eurozone. In order to do this, the underpinnings of the euro are analysed, and the requirements and benchmarks that have to be achieved, maintained, and respected are tested against the data found in three major statistics data sources: the European Central Bank’s Statistics Data Warehouse (http://sdw.ecb.europa.eu/), Economagic (www.economagic.com), and E-signal. The purpose of this work is to analyse if the euro was a stabilizing factor from its inception to the break of the financial crisis in summer 2008 in the European Union. To answer this question, this study analyses a number of indexes to understand the impact of the euro in three markets: (1) the foreign exchange market, (2) the stock market, and the Crude Oil and commodities markets, (3) the money market.