Lessons from the European Sovereign Debt Crisis : Towards a European Sovereign Debt Restructuring Mechanism
The recent global financial crisis has highlighted the tensions created by both a lack of fiscal discipline and a single monetary policy for the disparate members of the EMU. Greece, Ireland, and Portugal have already opted for IMF and EU crisis financing in the face of mounting debt burdens. The quandary now facing the European Union is how to deal with such crises. This paper examines the effectiveness of the newly developed European crisis resolution mechanisms in two ways. First, it quantitatively analyzes the impact of the European Financial Stability Facility on market perceptions of risk and draws some implications for the proposed European Stability Mechanism. Second, it returns to a previous debate waged between statutory and contractual mechanisms for restructuring sovereign debt, and examines the applicability of these critiques in the specific case of the ESM.