Publication: International Lending, Sovereign Debt and Joint Liability : An Economic Theory Model for Amending the Treaty of Lisbon
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2013-08
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2013-10-01
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As the Eurozone crisis drags on, it is evident that a part of the problem lies in the architecture of debt and its liabilities within the Eurozone and, more generally, the European Union. This paper argues that a large part of the problem can be mitigated by permitting appropriately-structured cross-country liability for sovereign debt incurred by individual nations within the European Union. In brief, the paper makes a case for amending the Treaty of Lisbon. The case is established by constructing a game-theoretic model and demonstrating that there exist self-fulfilling equilibria, which would come into existence if cross-country debt liability were permitted and which are Pareto superior to the existing outcome.
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“Basu, Kaushik; Stiglitz, Joseph E.. 2013. International Lending, Sovereign Debt and Joint Liability : An Economic Theory Model for Amending the Treaty of Lisbon. Policy Research Working Paper;No. 6555. © World Bank. http://hdl.handle.net/10986/15999 License: CC BY 3.0 IGO.”
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