O espectro do default

Why early sovereign default could save the euro, por Herald Hau e Ulrich Hege. Uma opção que parece ter desaparecido do ‘menu’ nos últimos tempos é defendida pelos autores como a hipótese menos dolorosa.

While many central bankers and policymakers are still in denial, time is running out to address the real problem of Europe’s debt overhang. The Greek example has shown how sovereign debt can be restructured without the market upheaval and contagion predicted by many (Landon 2012). The legal instruments can be put in place for Spain, Portugal, Italy, or other countries to undertake exchange offers of existing debt with new debt which include reductions of the principal and postpone interest payments. With primary deficits near zero, such debt restructuring is a real policy alternative. It has proven workable in previous cases, such Uruguay in 2003 (Buchheit and Pam 2004). The historical evidence from the large number of previous sovereign default episodes tends to show that the economic costs are short-lived (Borensztein and Panizza 2009).

Ultimately, the Eurozone will have to choose between sovereign default through debt restructuring and default on the real value of government bonds through inflation. Debt restructuring has many advantages if it is undertaken at an early stage.

  • Through orderly default, investors take responsibility for their investment decisions. This is not the case if they are bailed out via debt socialisation. Debt restructuring in the Eurozone would typically come with onerous conditions for borrowers, whereas excess inflation provides an easy windfall to all debtors. Thus, moral hazard for creditors and for debtors is attenuated.
  • Debt restructuring puts a much larger fraction of the financial burden on financial investors outside the Eurozone, whereas debt mutualisation bails out financial investors worldwide at the cost of Eurozone taxpayers.
  • Given the extremely high concentration of financial wealth, losses in any sovereign default will fall mostly on wealthy investors (as bank shareholders or bond investors typically are). By contrast, when debt is mutualised, middle-class taxpayers, the main source of tax revenues in the Eurozone countries, will have to bear a much larger fraction of the burden (Hau 2011).
  • Bailout schemes, as in the case of Greece, Portugal, Ireland, and soon Spain, come with politically sensitive external monitoring over an extended period of time. Orderly sovereign default in the Eurozone is likely to be linked to external conditions as well, but by reducing the transfers from over-indebted countries to their creditors, it removes one of the most poisonous elements of this process.
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