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Limited Liability Government Debt for the Eurozone -super-†

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  • Alistair K. L. Milne

Abstract

The Maastricht treaty, notably the article 103 prohibition on 'bail-outs', gave a prominent role to market disciplines on fiscal policy. These were not effective, failing to prevent the Euro area government debt crisis. This article suggests that these market disciplines can be made effective through issue of 'limited liability' debt (debt with a maximum debt service obligation as a proportion of GDP), together with rules constraining bank holdings of government debt and maturity structure, and a senior liquidity facility. This proposal is supported by analysis of fiscal arrangements within single currency areas and of emerging market sovereign debt restructuring. (JEL codes: E42, E62, H6 and H87) Copyright The Author 2011. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Suggested Citation

  • Alistair K. L. Milne, 2011. "Limited Liability Government Debt for the Eurozone -super-†," CESifo Economic Studies, CESifo Group, vol. 57(1), pages 44-78, March.
    • Handle: RePEc:oup:cesifo:v:57:y:2011:i:1:p:44-78
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifq023
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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