Dailami, Mansoor2012-08-132012-08-132012-03https://hdl.handle.net/10986/10050Three years into the euro area sovereign debt crisis, investors continue to shun periphery government bonds, European banks are under severe funding pressures in both the dollar and euro private term markets, and the euro area is facing an anemic growth outlook. On the face of it, the scenario portends gloom. But upon closer examination of the inner workings of the European Union (EU) governance system, the ongoing adjustment in the banking sector, and the rewiring of the landscape of euro sovereign debt markets, the future scenario looks more balanced, particularly following the conclusion of the protracted negotiations on Greek bond exchanges under an EU-backed voluntary private sector involvement (PSI) scheme. As euro area leaders formulate significant structural reforms to deal with the continent's longstanding fiscal and governance shortcomings, this note argues that striking a balance between market disciplines and centralized rule-making is the best way forward.CC BY 3.0 IGOADVANCED COUNTRIESADVANCED ECONOMIESASSET CLASSASSET LIQUIDATIONASSET PORTFOLIOSASSET QUALITYASSETSBAILOUTBALANCE SHEETBALANCE SHEETSBANK ACTIVITYBANK CREDITBANK EXPOSURESBANK FAILUREBANK HOLDINGBANK HOLDING COMPANYBANK OF GREECEBANK POLICYBANK RECAPITALIZATIONBANK REGULATIONBANK RISKBANKING AUTHORITYBANKING INDUSTRYBANKING INSTITUTIONSBANKING SECTORBANKING SYSTEMBANKING SYSTEM ASSETSBASIS POINTSBONDBOND ISSUANCEBOND ISSUESBOND MARKETSBOND SPREADSBOND YIELDBOND YIELDSBONDHOLDERSCAPITAL MARKETCDSCENTRAL BANKCENTRAL BANKSCENTRAL GOVERNMENTSCOLLATERALCOLLECTIVE ACTIONCOLLECTIVE ACTION CLAUSESCOMMON MARKETCORPORATE BONDCORPORATE BONDSCREDIBILITYCREDIT DEFAULTCREDIT DEFAULT SWAPCREDIT QUALITYCREDIT RATINGCREDIT RATINGSCREDIT RISKCREDITORCURRENCYCURRENT ACCOUNTCURRENT ACCOUNT DEFICITCURRENT ACCOUNT DEFICITSDEBT ACCUMULATIONDEBT CRISESDEBT CRISISDEBT HOLDINGSDEBT INSTRUMENTSDEBT MATURITIESDEBT OBLIGATIONSDEBT RATINGSDEBT RESTRUCTURINGDEBT SUSTAINABILITYDEBT-SERVICING COSTSDERIVATIVESDEVELOPING COUNTRIESEMERGING ECONOMIESEMERGING MARKETSEMERGING-MARKETEQUITY FLOWSEUROPEAN CENTRAL BANKEXCESSIVE DEBTEXCESSIVE DEBT ACCUMULATIONEXCHANGE MARKETEXCHANGE RATEEXCHANGE RATE REGIMESEXPORTERSEXPOSURESEXTERNAL FINANCINGFINANCIAL AFFAIRSFINANCIAL CRISISFINANCIAL INSTITUTIONFINANCIAL INSTITUTIONSFINANCIAL SECTORFISCAL CAPACITYFISCAL DISCIPLINEFLOATING EXCHANGE RATEFOREIGN CAPITALFOREIGN DEBTFOREIGN EXCHANGEFOREIGN EXCHANGE MARKETSFOREIGN MARKETSFREE ASSETGLOBAL CAPITALGLOBAL CAPITAL MARKETSGLOBAL INVESTORGLOBAL INVESTORSGOOD GOVERNANCEGOVERNANCE SYSTEMGOVERNMENT BONDSGOVERNMENT DEBTGOVERNMENT DEFICITSGOVERNMENT SECURITIESGROSS DOMESTIC PRODUCTHARMONIZATIONHOLDINGHOLDINGSHOME COUNTRYINCOMEINDIVIDUAL BANKSINSOLVENTINSURANCEINTERBANK MARKETSINTEREST PAYMENTSINTEREST RATEINTEREST RATESINTERNATIONAL SETTLEMENTSINVESTMENT FLOWSINVESTOR BASEINVESTOR UNCERTAINTYLIQUIDATIONLIQUIDITYLONG-TERM DEBTMACROECONOMIC CONDITIONSMACROECONOMIC POLICYMACROECONOMIC RISKSMANDATESMARKET CONDITIONSMARKET DISCIPLINEMARKET ECONOMIESMARKET FAILUREMARKET PARTICIPANTSMARKET PRACTICEMARKET SIZEMARKET VOLATILITYMATURITYMATURITY SPECTRUMMONETARY FUNDMONETARY POLICYMONEY MARKETMORAL HAZARDNATIONAL BANKNATIONAL DEBTNEGOTIATIONSNET EQUITYOUTSTANDING GOVERNMENT DEBTPENSIONPOLITICAL ECONOMYPOLITICAL RISKPORTFOLIOPOTENTIAL DEBTPRESENT VALUEPRINCIPAL REPAYMENTSPRIVATE CAPITALPRIVATE CREDITORSPRIVATE MARKETSPRIVATE SECTOR CREDITORSPUBLIC DEBTPUBLIC DEBT MARKETPUBLIC DEBT MARKETSPUBLIC FINANCESPUBLIC POLICYRECAPITALIZATIONREDEMPTIONREPAYMENTREPAYMENT CRISISRESERVERESERVE CURRENCYRESERVE HOLDINGSRESOLUTION MECHANISMRESTRUCTURING PLANRETURNSRISK AVERSIONRISK EXPOSURERISK MANAGEMENTRISK PROFILESSHORT-TERM DEBTSOVEREIGN BONDSOVEREIGN BONDSSOVEREIGN BORROWERSSOVEREIGN DEBTSOVEREIGN DEBT CRISESSOVEREIGN DEBT CRISISSOVEREIGN DEBT MARKETSOVEREIGN DEBT MARKETSSOVEREIGN DEBT RESTRUCTURINGSOVEREIGN RATINGSSOVEREIGN RISKSOVEREIGN SECURITIESSOVEREIGN YIELDSYSTEMIC RISKTERM DEPOSITSTIER 1 CAPITALTRADINGTRANSPARENCYTREASURIESTREATYTURNOVERTYPES OF DEBTWHOLESALE FUNDINGWORKOUTSWORLD DEVELOPMENT INDICATORSYIELD CURVEYIELD SPREADYIELD SPREADSWorld Bank10.1596/10050