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Volume 42, Issue 3

A Sovereign Debt Restructuring Framework for the Euro Area

This Article discusses the legal framework for sovereign debt restructuring in the euro area—both de lege lata and de lege ferenda. Sovereign debt restructurings remain exceptional events that come with profound implications for financial stability and monetary policy transmission. However, they may become necessary as part of a financial assistance program to a euro area Member State, as was the case for Greece in 2012. This Article seeks to contribute to the ongoing debate on how to enhance the functioning of the Economic and Monetary Union (“EMU”) by exploring the legal aspects of sovereign debt restructuring in the euro area. This includes an analysis on whether and how the procedures for sovereign debt restructurings in the euro area can be made more orderly, fair, and predictable by establishing a European Sovereign Debt Restructuring Framework (“ESDRF”). Drawing upon international standards for sovereign bond documentation, we propose the inclusion of enhanced Collective Action Clauses (“CACs”), as well as certain technical amendment clauses. In addition, we discuss two options for a dispute resolution mechanism when contractual techniques to restructure sovereign debt fail: (i) a specialized chamber of the Court of Justice of the European Union (“CJEU”) and (ii) a sovereign debt arbitration mechanism. The Article makes no judgment on the economic or political feasibility and necessity for such changes, but seeks to shine a light on the legal aspects that ought to be taken into account in the context of reforming the euro area’s sovereign debt crisis resolution framework.

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Recommended Citation:
Sebastian Grund and Mikael Stenström, A Sovereign Debt Restructuring Framework for the Euro Area, 42 Fordham Int'l L.J. 795 (2019). 
Available at: https://ir.lawnet.fordham.edu/ilj/vol42/iss3/3