International Lending, Sovereign Debt and Joint Liability [electronic resource] : An Economic Theory Model for Amending the Treaty of Lisbon / Kaushik Basu
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TextPublication details: Washington, D.C., The World Bank, 2013Description: 1 online resource (31 p.)Subject(s): Access to Finance | Bankruptcy and Resolution of Financial Distress | Banks & Banking Reform | Cross-country liability | Debt Markets | Economic Theory & Research | Eurozone crisis | Finance and Financial Sector Development | International lending | Joint liability | Macroeconomics and Economic Growth | Sovereign debtAdditional physical formats: Basu, Kaushik: International Lending, Sovereign Debt and Joint Liability.Online resources: Click here to access online Abstract: As the Eurozone crisis drags on, it is evident that a part of the problem lies in the architecture of debt and its liabilities within the Eurozone and, more generally, the European Union. This paper argues that a large part of the problem can be mitigated by permitting appropriately-structured cross-country liability for sovereign debt incurred by individual nations within the European Union. In brief, the paper makes a case for amending the Treaty of Lisbon. The case is established by constructing a game-theoretic model and demonstrating that there exist self-fulfilling equilibria, which would come into existence if cross-country debt liability were permitted and which are Pareto superior to the existing outcome.
As the Eurozone crisis drags on, it is evident that a part of the problem lies in the architecture of debt and its liabilities within the Eurozone and, more generally, the European Union. This paper argues that a large part of the problem can be mitigated by permitting appropriately-structured cross-country liability for sovereign debt incurred by individual nations within the European Union. In brief, the paper makes a case for amending the Treaty of Lisbon. The case is established by constructing a game-theoretic model and demonstrating that there exist self-fulfilling equilibria, which would come into existence if cross-country debt liability were permitted and which are Pareto superior to the existing outcome.
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