Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73553
Authors: 
Bank, Matthias
Kupfer, Alexander
Sendlhofer, Rupert
Year of Publication: 
2011
Series/Report no.: 
Working Papers in Economics and Statistics 2011-24
Abstract: 
We argue that current sovereign debt management lacks important incentives for governments and politicians to fulfill it in a sustainable and long-term orientated way. This paper outlines that the mechanisms to solve sovereign debt problems within the EMU are not only missing the right incentives but also setting the wrong ones. In contrast to current policy, we argue that only an instrument which is sufficiently sensitive to the performance of a country (i.e. its debt level) will motivate the players to engage in sustainable debt management. Specifically, we propose performance-sensitive government bonds (PSGB) where coupon payments are closely linked to debt policy, giving strong incentives to limit debt levels and to timely restructure the economy.
Subjects: 
Sovereign debt management
government bonds
incentives
EMU
debt crisis
JEL: 
G12
G13
H62
H63
Document Type: 
Working Paper

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