Working Paper: CEPR ID: DP18411
Authors: Patrick Bolton; Mitū Gulati; Xuewen Fu; Ugo Panizza
Abstract: This article examines the impact of Greece retroactively, via legislation, changing the terms in hundreds of billions of euros worth of Greek government bonds governed by domestic Greek law. As the abrogation of gold clauses in US government bonds by the US Congress in 1933 had been, the Greek action was decried as violative of the rule of law and sure to negatively impact the future ability of Euro area sovereigns to borrow. We test whether the Greek action had negative spillovers on European government debt markets. We find no evidence of increased borrowing for even the most peripheral European economies from the Greek action.
Keywords: Sovereign debt restructuring; Greece; Euro area crisis; Contagion
JEL Codes: F30; F34; G01; H63; K12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Greek government’s retroactive insertion of collective action clauses (H63) | increased borrowing costs for other peripheral European economies (F65) |
| Greek government’s retroactive insertion of collective action clauses (H63) | negative impact on borrowing costs of other euro area sovereigns (F65) |
| Greek action anticipated to negatively impact borrowing costs (F65) | fears of legal precedent (K40) |
| Greek restructuring viewed by market (F34) | weakening creditor rights (G33) |