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POLITICALLY ACCEPTABLE DEBT RESTRUCTING IN THE EUROZONE

Pierre Pâris and Charles Wyplosz Pierre Pâris and Charles Wyplosz

The PADRE plan starts from the view that several Eurozone countries have accumulated unsustainable public debt. Unsustainability here does not imply that the governments are bankrupt; technically, given sufficient time, governments are rarely unable to raise adequate resources one way or another. Some governments may run out of time when they lose market access or face high borrowing costs, which is a case of illiquidity, not insolvency. Unsustainability here means that, once the sovereign debt crisis is over, several governments will face a debt burden that will stunt economic growth, prevent the use of fiscal policy – the only macroeconomic instrument left in a monetary union – to deal with cyclical swings and, generally, make them excessively vulnerable to market sentiment. The implication is that public debt must be restructured.

{edocs}http://www.todiktio.eu/pdf/padre.pdf,800,800{/edocs}