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 mi...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| 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 |
| Summary: | 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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