International Lending, Sovereign Debt and Joint Liability : An Economic Theory Model for Amending the Treaty of Lisbon

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.

Bibliographic Details

Main Authors:	Basu, Kaushik, Stiglitz, Joseph E.
Format:	Policy Research Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2013-08
Subjects:	ACCESS TO CREDIT, ACCESS TO MONEY, ADVERSE SELECTION, BANK GUARANTEES, BANK LENDING, BANK MONITORING, BANK OF ENGLAND, BANK OF JAPAN, BANKRUPT, BANKRUPTCY, BANKRUPTCY CODE, BANKRUPTCY LAW, BOND YIELDS, BORROWER, BORROWING, BORROWING COSTS, BORROWINGS, BUSINESS RELATION, BUSINESS RELATIONS, CAPITAL FLOWS, CAPITAL MARKET, CAPITAL MARKETS, CDS, CENTRAL BANK, CENTRAL BANKS, CLOSED ECONOMY, COMITY, COMMERCIAL BANKS, COMMON CURRENCY AREA, COMPARATIVE ECONOMICS, COMPETITIVE MARKET, CONTRACT DESIGN, CONTRACT ENFORCEMENT, CONTRACTUAL ARRANGEMENTS, CONTRACTUAL RELATIONSHIP, CORPORATE BANKRUPTCY, COUNTRY DEBT, CREDIT FLOWS, CREDIT MARKET, CREDIT MARKETS, CREDIT RATIONING, CROSS DEFAULT, CURRENCY, DEBT BURDEN, DEBT CONTRACT, DEBT CRISIS, DEBT LIABILITY, DEBT REDUCTION, DEFAULT PROBABILITY, DEFAULT RISK, DEFAULT RISKS, DEFAULTS, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DIRECT CREDIT, DYNAMIC CONSISTENCY, ECONOMIC AGENTS, ECONOMIC CRISIS, ECONOMIC DEVELOPMENT, ECONOMIC EFFICIENCY, ECONOMIC OPPORTUNITIES, ECONOMIC POLICY, ECONOMIC THEORY, ECONOMIC THOUGHT, EFFORT CLAUSE, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKET ECONOMIES, EQUILIBRIUM, EUROPEAN CENTRAL BANK, EXCHANGE RATES, EXPECTED RETURN, EXTERNALITIES, EXTERNALITY, FINANCIAL ASSISTANCE, FINANCIAL CRISIS, FINANCIAL INDICATORS, FINANCIAL INTERMEDIARIES, FINANCIAL STABILITY, FREE TRADE, GAME THEORY, GLOBAL MARKETS, GLOBALIZATION, GOVERNMENT BONDS, GUARANTOR, HIGH INTEREST RATE, INCOMPLETE MARKETS, INEFFICIENCY, INITIAL INVESTMENT, INSURANCE, INSURANCE MARKETS, INTEREST RATE, INTERNATIONAL BANK, INTERNATIONAL COURTS, INTERNATIONAL CREDIT, INTERNATIONAL DEBT, INTERNATIONAL DEBT CRISIS, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCE, INTERNATIONAL INVESTMENT, INTERNATIONAL INVESTMENT BANKS, INTERNATIONAL LENDING, JOINT LIABILITY, LABOR FORCE, LABOR MARKET, LAST RESORT, LAWS, LENDER, LENDERS, LEVERAGE, LIABILITY ARRANGEMENT, LIMITED LIABILITY, LOAN, LOAN CONTRACT, LOAN GUARANTEE, LOW INTEREST RATE, MACROECONOMIC POLICIES, MARKET EFFICIENCY, MARKET FAILURES, MICRO-FINANCE, MICROFINANCE, MONETARY AUTHORITY, MONETARY POLICY, MORAL HAZARD, NASH EQUILIBRIUM, NORMAL PROFIT, PAYOFF, POLITICAL ECONOMY, POOR BORROWER, PRIMARY MARKET, PRIVATE PARTY, PROBABILITY OF DEFAULT, PRODUCT MARKETS, PROVISION OF LOANS, PUBLIC POLICY, RECESSION, REGULATORY SYSTEM, RENEGOTIATION, REPAYMENT, RETURN, RETURNS, RISK OF DEFAULT, SOCIAL CAPITAL, SOVEREIGN BOND, SOVEREIGN BONDS, SOVEREIGN DEBT, SOVEREIGN DEBT MARKET, SOVEREIGN DEBT PROBLEM, SOVEREIGN DEBTS, SOVEREIGN DEFAULT, SOVEREIGN DEFAULTS, SOVEREIGN YIELDS, STRUCTURAL CHANGE, SUBSIDIARY, TRADING, TREASURIES, TREATIES, TREATY, TURNOVER, UNEMPLOYMENT, UNION, UNIONS, WITHDRAWAL,
Online Access:	http://documents.worldbank.org/curated/en/2013/08/18104367/international-lending-sovereign-debt-joint-liability-economic-theory-model-amending-treaty-lisbon http://hdl.handle.net/10986/15999
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