Newspaper article International Herald Tribune

E.U. May Resist the Radical but It Needs Drastic Action

Newspaper article International Herald Tribune

E.U. May Resist the Radical but It Needs Drastic Action

Article excerpt

Europe has avoided radical solutions to the debt crisis so far, but it needs to make some kind of major leap.

In Europe, they don't like to talk about Plan B's.

As the European sovereign debt crisis enters its fourth year, the region's policy makers are sticking with a familiar playbook. Their crisis response moves in fits and starts as compromises are struck between the most powerful countries in the euro zone. Then, aid is typically granted only if the recipients adopt policies that often lead to protracted economic pain.

For the most part, though, Europe has avoided radical solutions.

"They still seem to be favoring the ad hoc measures, unfortunately," said Raoul Ruparel, head of economic research at Open Europe, a research group that believes the European Union needs to be more transparent and accountable. "They are still short of some sort of big leap."

Yet Europe may eventually need to take more drastic action.

What follows are three plans that aren't bound by the policy makers' current orthodoxy. Right now, such ideas have little chance of being adopted by European leaders. But if the region does not emerge from its slump, policy makers may need some bold solutions.

Tackling the debt problem The first plan focuses on the crisis's root cause, sovereign debt.

In the case of Greece, Europe's leaders realized that the country's debt could not be sustained. So Greek bonds have been written down and restructured.

European policy makers don't want to do that for other countries, because it might prompt sell-offs in the region's government bond markets and hurt the banks that hold sovereign debt.

But one type of debt restructuring could be adapted to suit Europe's situation. It is an approach championed by Lee C. Buchheit, a lawyer at Cleary Gottlieb Steen & Hamilton, a New York law firm that has advised nations on debt restructurings. He acknowledges that big write-downs of sovereign debt could be too jarring and unpopular in Europe.

Instead, he says, a stressed country's debt could be extended. For instance, under this plan, a 10-year government bond would not need to be paid back for, say, 30 years. …

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