Search Results

This chapter explains the international financial architecture supporting the financing of international development. It examines the international borrowing practices of sovereign states, and analyzes two case studies of the Mexican and Asian financial crises. These sovereign debt crises are examined from the standpoint of strategic and tactical approaches to resolving them, and preventing financial contagion in the future. The current global financial contagion, originating in the United States, and its impact on developing countries, is reviewed from a “lessons learned” perspective. Tactical approaches to resolving sovereign debt crises such as debt-for-debt exchanges, debt-equity swaps, debt securitization, credit facilities, and special financing techniques are critically reviewed. Finally, debt relief as a development strategy is critically examined. Explanatory text boxes and other graphics are provided to assist the reader absorb a complex area of law.

This chapter turns our attention to a reform initiative driven by the private financial community in the form of a voluntary code of good conduct that would informally pressure the debtor countries to follow policies and practices that the creditors advocate. Although implementation of the code is now monitored by a group of prominent individuals from the private and public sectors convoked by an international bankers' organization, it is not clear that it will play a role in any wave of sovereign insolvencies. After all, and unlike a bankruptcy regime, it is purely voluntary. This chapter suggests, instead, how to develop an alternative that would have greater credibility with debtors as well as creditors and could have some force behind it.

This chapter focuses on what lessons might be drawn for sovereign insolvency from the principles underlying national policies for corporate or personal bankruptcy. It then develops a framework to analyze alternative mechanisms for sovereign debt restructuring. It draws parallels between private and government bankruptcy and finds that the special nature of governments makes it complicated, but not impossible, to define an attractive sovereign counterpart to national bankruptcy laws. It notes that different processes for dealing with insolvency, as well as their outcomes, can be more or less efficient and fair. It argues that countries adopt domestic bankruptcy laws for both efficiency and equity reasons, and that the goal of an effective bankruptcy regime should therefore be both ex ante and ex post, efficient and equitable

This chapter discusses the fiscal policy dimension to European monetary union in the context of the current sovereign debt crisis. It addresses the central question of the extent to which the shift to European monetary union makes the arrival of a European fiscal union inevitable. It then lists several new political and economic challenges for the EU and for individual Member States. This chapter determines that a discreet move towards fiscal union across the Euro area cannot be avoided if the single currency area is to remain whole. It also considers the suggestion that the EU is at a crossroads, in terms of being an international political and economic arrangement.

Recent controversies surrounding sovereign debt restructurings show the weaknesses of the current market-based system in achieving efficient and fair solutions to sovereign debt crises. This article reviews the existing problems and proposes solutions. It argues that improvements in the language of contracts, although beneficial, cannot provide a comprehensive, efficient, and equitable solution to the problems faced in restructurings–but there are improvements within the contractual approach that should be implemented. Ultimately, the contractual approach must be complemented by a multinational legal framework that facilitates restructurings based on principles of efficiency and equity. Given the current geopolitical constraints, in the short-run we advocate the implementation of a “soft law” approach, built on the recognition of the limitations of the private contractual approach and on a set of principles – most importantly, the restoration of sovereign immunity – over which there may be consensus. We suggest that in a context of political economy tensions it should be impossible for a government to sign away the sovereign immunity either for itself or successor governments. The framework could be implemented through the United Nations, or it could prompt the creation of a new institution.

This chapter explains similarities and differences in the way in which two Southern European financial systems have been affected by the global financial crisis and have reacted to it. It is argued that Italy and Greece were affected moderately by banking crisis in 2008–9. Subsequently, Greece suffered an extreme sovereign debt crisis, and resorted to an EU/IMF bailout in 2010. Italy did not experience a full sovereign debt crisis, even though in the summers of 2011 and 2012 it experienced significant difficulties in funding its public debt on the market at a sustainable rate. Thus Greece and (potentially) Italy are cases of a crisis spreading from the public debt sector to the national banking system rather than the other way round.

This chapter examines the causes and consequence of two interconnected crises—the international financial crisis (2007–9) and the euro area’s sovereign debt crisis (from 2010)—which formed the background to the intergovernmental negotiations on Banking Union, and which largely explain its timing. The chapter also outlines the framework for financial stability in the EU before and after the crises. It is argued that the sovereign debt crisis created a doom loop between the instability of national banking systems, which needed to be bailed out in many countries, and the fragility of public finances, which were becoming unsustainable in some countries. Moreover, the crisis brought to the fore the financial trilemma between financial stability, financial market integration, and national regulation, supervision, and resolution—this trilemma was made particularly acute by Economic and Monetary Union (EMU) and became untenable in the euro area.

In autumn 2008, just as the euro was approaching its tenth anniversary, the European Union (EU) became embroiled in the Global Financial Crisis (GFC). Elsewhere in the world, including in the US, where it originated, the GFC caused a very deep recession but then receded, and was essentially over by the end of 2009. In the EU, however, it took a double-dip form, with the EU-28 area’s real gross domestic product (GDP) suffering a -4.4 per cent fall in 2009 and another -0.5 per cent fall in 2012. The timing and impact of the crisis differed significantly across Member States, and the recovery was uneven. Taken as a whole, the euro area (EA19) performed worse than the rest of the EU, especially in 2012–13, when it lost -1.3 per cent of GDP, and only returned to its 2007 GDP level in 2015.

This chapter examines the institutional actions and acts produced in the context of the EU sovereign debt crisis. By identifying a number of these acts and actions as abnormal rather than merely non-standard or atypical, attention is drawn to the features of these acts and actions that trouble the law/non-law boundary. Significantly, they trouble it not because they are soft law, but rather because they act as law without fulfilling the requirements or desiderata of binding acts adopted by public authorities. This includes obviously problematic features such as secret sources and institutional actions. It also opens for consideration the cumulative and not easily visible institutional power conferred by interaction of a series of different levers possessed by the European Central Bank in sovereign debt crisis management. Hence the contribution stresses the rule of law issues raised by this large new area of EU action.

The chapter provides a history of debt crises resolution and the rise of the current “non-system,” which mixes the Paris Club for official debts, voluntary renegotiations with private creditors and occasional ad hoc debt-relief initiatives (the Brady Plan and Highly-Indebted Poor Countries and Later Multilateral Debt Relief Initiatives). This system, he argues, not only provides inadequate solutions but does not guarantee equitable treatment, neither of different debtors nor of different creditors. He then proposes a multilateral mechanism for sovereign debt restructuring that offers a sequence of voluntary negotiations, mediation and eventual arbitration with pre-established deadlines, similar in a sense to the World Trade Organization’s dispute settlement mechanism.

The structural power of finance in sovereign debt crises is a product of the financial sector's position as the principal creator of credit-money within the capitalist economy, and it revolves around its capacity to withhold the short-term credit lines on which all states—as well as firms and households—depend for their reproduction. This chapter discusses the three enforcement mechanisms of debtor compliance through which the structural power of finance is hypothesized to operate, specifying in each case the precise conditions and countervailing forces bearing on their overall strength and effectiveness. These mechanisms are market discipline; the conditional emergency lending by creditor states and international financial institutions; and the intermediary role fulfilled by domestic political and financial elites inside the borrowing countries.

This chapter examines a phenomenon which it seems appropriate to refer to as the increasing regionalization of monetary sovereignty, ie the joint exercise of monetary sovereignty in a monetary union under the special form of cooperative sovereignty. Since the onset of economic globalization in the 1960s, a large number of states around the world have sought increasingly strong economic integration and have embarked on paths towards creating monetary unions, eventually adopting a common currency, and thereby renouncing their right to conduct independent monetary policies. After considering the economic rationale and key legal characteristics of the increasing regionalization of monetary sovereignty around the globe, this chapter looks into the adaptation of the European Union’s legal framework to the increasing impact of domestic economic and fiscal policies on regional economic stability and analyses several overarching legal and conceptual challenges exposed by the ongoing European sovereign debt crisis.

This chapter explores how financial globalization of today fails to deliver enough of the right sort of finance necessary to promote development and productive investment in societies. The contemporary global financial architecture serves primarily to enrich affluent investors and major financial institutions while putting societies and their people at grave risk of harm, including from global financial crises. The chapter explores these issues by first examining the history of the global financial architecture from the nineteenth century to the present. It moves on to critique current institutions of law mainly on grounds of justice. The chapter addresses problems associated with the regulation and supervision of banks, at the international level a form of soft law forming the core of the global financial architecture. It also explores how the power of global finance makes real reform at either the domestic or international level very difficult. Finally, the chapter exposes injustices associated with the resolution of sovereign debt crises, with a focus on the recent crisis for Greece. It considers serious shortcomings of the international legal system in this area, including how the contract approach of international law sought to resolve the crises in a manner in which the less advantaged are made much worse off.

The chapter analyzes the return and volatility connectedness of 12 developed country 10-year sovereign bonds. Return and volatility connectedness in international bond markets behave very differently from the ones among the major stock markets around the world. The return connectedness of the sovereign bond markets increased significantly following the Federal Reserve’s decision to tighten the monetary policy. The return and volatility connectedness went up gradually from 1998 through 2008, and they started declining during the global financial crisis. Interestingly, as the world financial markets went into a deep crisis in late 2008, volatility in bond yields and their connectedness declined sharply. While some sovereign debt markets became highly risky, the others became safe havens and decoupled. The return and volatility connectedness of the sovereign debt markets increased again during the European sovereign debt crisis of 2011 and 2012. European sovereign debt markets are connected more tightly than the American, Japanese, Canadian and Australian debt markets.

This chapter evaluates the case of Greece's sovereign debt crisis. Greece only makes up one-fiftieth of the eurozone economy. The problems it has caused the monetary union, however, are out of all proportion to its size. Greece is where the sovereign debt crisis started; and it is the one eurozone economy whose membership of the euro remains unsettled. That is why a detailed examination of Greece's travails is the right place to start a retelling of Europe's crisis. It reveals just how stubbornly the eurozone has stuck to the goal of trading financial transfers for more centralised power — from the first crisis in early 2010 to the renewed stand-off between Greece and the rest of the eurozone after left-wing radicals won power in Athens in January 2015.

This chapter investigates the techniques credit rating agencies (CRAs) use to produce sovereign ratings. In market environments typical of times of crisis, CRAs do more than simply collect additional information when they are unsure about their ratings. CRAs resort to a set of constitutive techniques by which they adapt strategically to cognitive inconsistencies and credibility concerns. Drawing on Moody’s rating reports issued for downgrades of Greek sovereign bonds, the chapter focuses on three of such constitutive techniques: plausibility, backward reasoning, and reactivity. Rating reports are ‘figuring’ documents in which CRAs generate figures about, as well as ‘figure out’ the financial uncertainties they are tasked with predicting. The chapter describes the bundle of cognitive, legal, and political uncertainties which, together, explain how rating inconsistencies played out in the unfolding Greek sovereign debt crisis. The chapter contributes to recent research on legal knowledge in the global financial markets.

The chapter discusses the “institutionalization” of a multinational framework for sovereign debt restructuring. In Kaiser’s view, the institutionalization should comply to three basic principles: first, it needs to restructure debt in a single comprehensive process, with no payment obligations being exempted from the process; second, it needs to allow for an impartial decision making about the terms of any debt restructuring; and third, this decision must be based on an impartial assessment of the debtor’s situation. He claims that there are not many historical precedents for a sovereign debt restructuring which complies with these conditions, but the case of Indonesia in 1969 may be inspiring. He argues that a “Sovereign debt Restructuring Liaison Office” mandated by the UN and run independently from any debtor or creditor interference could be a catalytic element with the potential to overcome the shortcomings of existing procedures. In this view, it could facilitate a comprehensive negotiation format with all stakeholders around the table; it could provide an impartial and thus realistic assessment of the need for debt relief; and it could suggest an un-biased solution. Such an “office” could be established immediately as an outcome of the present UN-General Assembly consultation process and then develop its rules, regulations and infrastructure over time.

From the onset of European monetary cooperation until the current eurozone crisis, France and Germany have been at the heart of European decision-making on monetary affairs. Monetary integration provides an outstanding example of the impact of Franco-German bilateralism in a key European policy field. This chapter examines the crucial leadership role of the two states in setting the agenda for integration in monetary affairs—the European Monetary System (EMS) in the 1970s and Economic and Monetary Union (EMU) prior to the Maastricht Treaty in 1988–91. Despite different national monetary policy traditions and monetary cultures, France and Germany struck “compromises by proxy” acceptable to other states. During the current sovereign debt crisis, they have been pivotal in shaping the fate of the eurozone, providing common leadership. Chapter 8 also analyzes the growing asymmetry between France and Germany when it comes to financial resources and economic competitiveness, and its consequences for their common leadership capacity.