tailieunhanh - Trichet Bonds To Resolve the European Sovereign Debt Problem

We propose the creation of “Trichet Bonds” as a comprehensive solution to the current sovereign debt crisis in the EU area. “Trichet Bonds,” to be named after the ECB president Jean-Claude Trichet, will be similar to “Brady Bonds” that resolved the Latin American debt crisis in the late 1980s and were named after the then Treasury Secretary Nicholas Brady. Like the Brady Bonds, Trichet Bonds will be new long-duration bonds issued by countries in the EU area that will be collateralized by zero-coupon bonds of the same duration issued by the ECB. The zero-coupon bonds will be sold by the ECB to the countries issuing Trichet. | NET Institute Working Paper 11-01 January 2011 Trichet Bonds To Resolve the European Sovereign Debt Problem Nicholas Economides and Roy C. Smith Stern School of Business NYU The Networks Electronic Commerce and Telecommunications NET Institute http is a non-profit institution devoted to research on network industries electronic commerce telecommunications the Internet virtual networks comprised of computers that share the same technical standard or operating system and on network issues in general. Trichet Bonds To Resolve the European Sovereign Debt Problem by Nicholas Economides and Roy C. Smith January 2011 Professor of Economics Stern School of Business New York University NY 10012 212 998-0864 economides@. Kenneth Langone Professor of Entrepreneurship and Finance Stern School of Business New York University NY 10012 212 998-0719 rsmith@. 1 Trichet Bonds To Resolve the European Sovereign Debt Problem by Nicholas Economides and Roy C. Smith Executive Summary We propose the creation of Trichet Bonds as a comprehensive solution to the current sovereign debt crisis in the EU area. Trichet Bonds to be named after the ECB president Jean-Claude Trichet will be similar to Brady Bonds that resolved the Latin American debt crisis in the late 1980s and were named after the then Treasury Secretary Nicholas Brady. Like the Brady Bonds Trichet Bonds will be new long-duration bonds issued by countries in the EU area that will be collateralized by zero-coupon bonds of the same duration issued by the ECB. The zero-coupon bonds will be sold by the ECB to the countries issuing Trichet Bonds which will be offered in exchange for outstanding sovereign debt of the countries. The exchange is offered at market value so current debt holders will experience a haircut from par value and thus the exchange does not involve a bailout. However present holders of sovereign debt will be exchanging low quality bonds with limited .

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