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...

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Main Authors:	Basu, Kaushik, Stiglitz, Joseph E.
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
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

id	okr-10986-15999
recordtype	oai_dc
spelling	okr-10986-159992021-04-23T14:03:27Z International Lending, Sovereign Debt and Joint Liability : An Economic Theory Model for Amending the Treaty of Lisbon Basu, Kaushik Stiglitz, Joseph E. 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 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. 2013-10-01T21:11:04Z 2013-10-01T21:11:04Z 2013-08 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 English en_US Policy Research Working Paper;No. 6555 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Europe and Central Asia
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	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
spellingShingle	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 Basu, Kaushik Stiglitz, Joseph E. International Lending, Sovereign Debt and Joint Liability : An Economic Theory Model for Amending the Treaty of Lisbon
geographic_facet	Europe and Central Asia
relation	Policy Research Working Paper;No. 6555
description	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.
format	Publications & Research :: Policy Research Working Paper
author	Basu, Kaushik Stiglitz, Joseph E.
author_facet	Basu, Kaushik Stiglitz, Joseph E.
author_sort	Basu, Kaushik
title	International Lending, Sovereign Debt and Joint Liability : An Economic Theory Model for Amending the Treaty of Lisbon
title_short	International Lending, Sovereign Debt and Joint Liability : An Economic Theory Model for Amending the Treaty of Lisbon
title_full	International Lending, Sovereign Debt and Joint Liability : An Economic Theory Model for Amending the Treaty of Lisbon
title_fullStr	International Lending, Sovereign Debt and Joint Liability : An Economic Theory Model for Amending the Treaty of Lisbon
title_full_unstemmed	International Lending, Sovereign Debt and Joint Liability : An Economic Theory Model for Amending the Treaty of Lisbon
title_sort	international lending, sovereign debt and joint liability : an economic theory model for amending the treaty of lisbon
publisher	World Bank, Washington, DC
publishDate	2013
url	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
_version_	1764431984242720768

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

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