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Alexander, Kern --- "Sovereign Debt Restructuring in the EU: Lessons from the Recent Crisis" [2011] ELECD 1052; in Alexander, Kern; Moloney, Niamh (eds), "Law Reform and Financial Markets" (Edward Elgar Publishing, 2011)

Book Title: Law Reform and Financial Markets

Editor(s): Alexander, Kern; Moloney, Niamh

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857936622

Section: Chapter 10

Section Title: Sovereign Debt Restructuring in the EU: Lessons from the Recent Crisis

Author(s): Alexander, Kern

Number of pages: 21

Extract:

10. Sovereign debt restructuring in the
EU: Lessons from the recent crisis
Kern Alexander*

INTRODUCTION

The global financial crisis has led to a severe recession in Europe culminat-
ing in sovereign debt problems for many eurozone governments. Greece
was particularly hard hit because of fiscal mismanagement and unsustain-
ably high levels of public debt, resulting in an extraordinary and unprec-
edented bailout by eurozone governments and the International Monetary
Fund (IMF), with the creation of the European Financial Stabilization
Mechanism1 and the European Financial Stability Facility (EFSF).2 The


* I would like to thank Karin Lorez for her research assistance. In a previ-
ous commissioned report, entitled `Market Impact of an Orderly Sovereign Debt
Restructuring' (September 2010), the author proposed the mandatory use of col-
lective action clauses (CACs) for EU sovereign bond contracts and a permanent
sovereign liquidity mechanism. The CAC proposal was later adopted by the
European Council in December 2010 in a Regulation that would require all EU
states to use CACs in their sovereign bond contracts from 2013 onwards.
1 The EU created the EFSM in 2008 to lend up to 60 billion euros to EU

Member States who were experiencing difficulties in financing international trade
resulting from the global credit crunch and the collapse of Lehman Brothers
in 2008. Council Regulation (EU) No. 407/2010 of 11 May 2010 establishing a
European Financial Stability Mechanism, OJ L 118/1 (12/05/2010). The EU used
the fund along with additional IMF financial support to help ...