2015 | OriginalPaper | Chapter
Sovereign Debt and its Restructuring Framework in the Eurozone
Author : Ashoka Mody
Published in: Managing Risks in the European Periphery Debt Crisis
Publisher: Palgrave Macmillan UK
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Debt is a particularly serious macroeconomic problem in the eurozone. Public debt ratios are high by international historical standards, with no immediate prospect of a significant reduction. Private — corporate and household — debt ratios are either flat or rising. Banks remain fragile and impose a contingent liability on the public purse. The most stressed economies have not had the option of renewing economic growth through exchange rate depreciation and a boost to exports. Thus, fiscal austerity has been their principal instrument to achieve debt reduction. But since austerity also hurts growth, the debt-to-GDP ratios have barely budged. Persistent low growth has also created deflationary tendencies, which further raise the challenge of debt reduction.