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Is Greek Debt Really Unsustainable?

Greece will go to the polls on January 25th and everybody from German conservatives to Greek leftists seems to agree: Greek public debt is unsustainable. A haircut on investors and some form of partial default – more politely known as debt restructuring – is the only answer. ΙΜΚ 2015 Greek Debt by Debt Free on…

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Non-Defaultable Debt and Sovereign Risk

We quantify gains from introducing non-defaultable debt as a limited additional financing option into a model of equilibrium sovereign risk. We find that, for an initial (defaultable) sovereign debt level equal to 66 percent of trend aggregate income and a sovereign spread of 2.9 percent, introducing the possibility of issuing non-defaultable debt for up to…

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IMF working paper: Dealing with Systemic Sovereign Debt Crises: Fiscal Consolidation, Bail-ins or Official Transfers?

The paper presents a tractable model to understand how international financial institutions (IFIs) should deal with the sovereign debt crisis of a systemic country, in which case private creditors’ bail-ins entail international spillovers. Besides lending to the country up to its borrowing capacity, IFIs face the difficult issue of how to address the remaining financing…

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