Details

Autor(en) / Beteiligte

• De Grauwe, Paul
• Ji, Yuemei
• Steinbach, Armin

Titel

The EU debt crisis: Testing and revisiting conventional legal doctrine

Ist Teil von

• International review of law and economics, 2017-08, Vol.51, p.29-37

Ort / Verlag

Elsevier Inc

Erscheinungsjahr

2017

Link zum Volltext

Quelle

Elsevier ScienceDirect Journals Complete

Beschreibungen/Notizen

• •Legal doctrine on the euro sovereign debt crisis rests on strong empirical claims mainly reflecting solvency concerns.•These claims may not always hold true, especially when liquidity concerns predominate. Hence, legal interpretation should be revisited.•Part of the surge in the bond spreads was disconnected from fundamentals and country’s debt position (i.e. solvency concerns).•Market sentiments (linked to liquidity concerns) are dominant drivers in times of crisis.•No-bailout principle and ban on monetary financing should capture non-debt related factors and allow for a lender of last resort. Controversies surrounding the European sovereign debt crisis loom prominent in the public debate. From a legal perspective, the no-bailout rule and the ban on monetary financing constitute the main principles governing the legality review of financial assistance and liquidity measures. Interpretation of these rules is full of empirical claims. According to conventional legal doctrine, bond spreads only depend on the country’s debt position, largely ignoring other causal factors including liquidity. We test the hypotheses implicit in conventional legal reasoning. We find evidence that a significant part of the surge in the spreads of the peripheral Eurozone countries was disconnected from underlying fundamentals and particularly from a country’s debt position, and was associated rather strongly with market sentiments and liquidity concerns. We apply our empirical findings to the legal principles as interpreted by recent jurisprudence arguing that application of the no-bailout principle and the ban on monetary financing should be extended to capture non-debt related factors. Also, the empirical results suggest taking recourse to alternative legal grounds for reviewing the legality of anti-crisis instruments and allowing for a lender of last resort in the euro zone.